The Bank of Japan intervened to curb the yen’s rise overnight, sending the JPY lower against the dollar and euro. The action supported the dollar versus the euro, taking the single currency off overnight highs of $1.436. Meanwhile, with the Swiss franc up 20% versus the dollar year to date and 14% versus the euro, it is no wonder that the Swiss National Bank is also taking steps to halt the risk of its safe haven currency. Yesterday it cut interest rates to almost zero, which saw the CHF retreat from its highs. However, despite the intervention both the JPY and the CHF could be set to resume their rising trend as waning risk appetite remains a key driver for forex markets in the face of a string of disappointing global data. Yesterday’s marginally better than expected US ADP employment report was overshadowed by a disappointing services ISM, with the dip in activity in July further raising concerns about the outlook for the US.

Given the weak tone to recent UK economic data, yesterday’s better than expected services PMI came as something of a welcome surprise. The headline index rose to 55.4 from 53.9 in June, bringing it back to its best level since March of this year. This is stronger than the 53.2 reading expected. Both the new business and business expectations indices also rose.

However, the survey of business activity is still well below the kind of levels that are consistent with strong growth. Indeed, the composite PMI index (which takes into account other sectors of the economy) currently stands at 54.4, which is consistent with GDP growth of less than 0.5%. Thus, it does not look like the economy regained a huge amount of momentum in the opening months of quarter three. Thus, the data are unlikely to change the markets view that UK rates are set to remain on hold for some time. Indeed, the Bank of England makes a policy announcement today but no rate changes are anticipated, which means that we will have to wait until the minutes of the meeting are released in two weeks time to see what the MPC’s latest thinking is. We suspect it remains dovish in its outlook given the weak tone of recent UK data. Sterling got a lift against both the dollar and euro following the release, however, is limited as investors remain risk averse, with the GBP giving up some of its gains versus the USD overnight.