The September volatility continued yesterday with FX markets whipsawing violently throughout the session. GBP was one of the main winners surprisingly and managed to break above the 1.14 handle against the EUR (0.8758 in EUR/GBP terms) whilst breaking back into the 1.62 -- 1.66 range against the USD.

Data yesterday was once again mixed. UK construction PMI was higher at 47.7 but missed the market consensus view of 48. The more important services reading is due today alongside its European counterpart. A good reading (higher than 54.0) is needed to stabilise sterling if it wants to avoid becoming the worst performing G10 currency for the 2nd month in a row.

European GDP was confirmed at -0.1% which came with little fanfare. The ECB meeting is due today and, as has become the custom, most of the real news will come from the press conference at 13.30 BST. We expect no movement in rates or asset purchases and a continued ’steady as she goes’ oeuvre from the boys in Frankfurt.

US ADP employment change was worse than expected setting up an ominous feeling for Friday’s NFP release. Private sector jobs were 298,000 lower missing the consensus estimates of 250,000. These losses are mainly occurring in small businesses and given their dependence on both consumer credit and confidence we expect to see an upturn in jobs figures by the beginning of next quarter. For Friday however we predict a jobs figure of -198k.

Apart from the ECB and European and UK PMIs we have European retail sales and US ISM Non-Manufacturing due this session. Markets will probably be fairly quiet before the ECB announcement and becoming more volatile as the US market opens.

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