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UK data disappoints, Carney in focus
The UK recorded the steepest decline in manufacturing output in a year, as the production tanked by 0.9% month-on-month in July. The industrial production printed a slightly better performance (+0.1% month-on-month versus -0.2% expected). As a knee-jerk reaction, the GBPUSD slipped below 1.34, giving a positive spin to the FTSE.

Later in the day, the Bank of England (BoE) Governor Mark Carney will testify to UK’s lawmaker in the Parliament. The surprisingly rapid recovery in the UK’s business sentiment following the country’s decision to leave the European Union, despite today’s disappointing manufacturing data, suggests that the post-Brexit era may not be as catastrophic as many had predicted. In fact, the expectation of a second interest rate cut by December eased to 26% after having topped at 50% post-Brexit. This implies that the former 25 basis point cut helped tempering the sell-off in the UK's assets, nevertheless an additional rate cut would be unnecessary, at least for the moment.

Mr. Carney had already voiced his reluctance regarding the zero-to-negative rate monetary policies. In this context, if risks of a post-Brexit recession have eased, then the BoE could be expected to soften its dovish tone and to refrain from further monetary stimulus. Such hawkish shift in the BoE's policy outlook should encourage a further recovery on the pound market.

Against the US dollar, the pound has room for a further recovery to 1.3500 (psychological resistance) and 1.3640 (major 38.2% retracement on post-Brexit sell-off, mid-term resistance to the post-Brexit bearish trend).

Versus the euro, the pound is gradually gaining territory. The mid-term target is fixed at 0.8045, the major 38.2% retrace on post-Brexit rally.

USDJPY double-hit

Yesterday’s aggressive USD sell-off in New York was due to a significantly weaker-than expected ISM non-manufacturing data, that hinted at an important slowdown in the US’ non-manufacturing business expansion in August. Although the September Fed rate hike expectations tanked to 24% from above 30% last week, the sell-off in the US dollar remained contained in Asia against the majority of G10 currencies, except the yen.

The Japanese yen has once again lead gains in Tokyo, pushing the USDJPY in the short-term bearish consolidation zone. The pair erased three fourth of gains recorded at the post-Jackson Hole rally. The fading expectations that the Bank of Japan (BoJ) would pull out the bazooka in September have been a cherry on top. The narrowing divergence between a more dovish Fed and a less hawkish BoJ outlook brings the 100-level back on the radar.