Markets were confined to generally narrow ranges during the Asian session on Monday with the yen being the main focus. The Japanese currency gained some support from a decline in the Nikkei index and follow-through buying from Friday’s patrol data as USD/JPY dipped below 98.50. There was some relief surrounding the latest Chinese non-manufacturing PMI data which curbed any further deterioration in risk appetite and also helped AUD/USD find some support around 0.8850.
The Euro-zone PMI data continued to offer some degree of support to the Euro with the services-sector index edging higher to a final 49.8 from a flash 49.6 reading. There was also some relief surrounding the Spanish and Italian indices as they improved for the month, although the overall impact was limited as EUR/USD again hit resistance close to the 1.33 level.
The UK economic data was again stronger than expected with the PMI services-sector index rising to 60.2 from 56.9 the previous month. This was the strongest reading for seven years and there have been six successive monthly advances from a low below 50 in January.
With strong readings for all three UK PMI indices, there was another improvement in optimism surrounding the economy as a whole and there was an initial GBP/USD move above 1.5350 to a high just above 1.5370. There were still some reservations over aggressive Sterling buying given the Bank of England inflation report on Wednesday with expectations that the bank will signal its intention to maintain a very loose policy. EUR/GBP did, however, continue its decline from recent highs with a move back below 0.8650.
Consolidation then tended to dominate into the New York open with lacklustre conditions often a Monday feature following the Friday US employment release. A sharp decline in speculative Euro short positions in the latest CFTC data did help the dollar show some resilience.
The latest US ISM data was much stronger than expected with an increase to 56.0 for July from 52.2 previously and this was the third reading of 56.0 or higher during 2013. There was a strong rebound in orders and an increase in the inflation component will tend to ease speculation over inflation being too low.
EUR/USD had already drifted lower into the release and there was a test of the 1.3230 area where initial buying support appeared with players unable to break out of narrow ranges. USD/JPY did managed to regain the 98.50 level as US Treasury yields pushed higher.