• ADP employment report: 42,000 private sector jobs created in July; near expectations
  • Non-manufacturing ISM rises to 54.3 in July from 53.8 in June; stronger than expected
  • Goldman Sachs said to spin out prop trading group into new company
  • Italy’s Tremonti: Any political crisis won’t won’t impact public finances
  • S&P 500 rises 0.6% to 1127
  • US yields rise as expectations of further Fed action eases (no pun intended); 10-yr note at 2.96% from 2.91%; 2-year not rises to 0.57% from 0.54%

EUR/USD dropped sharply in the wake of stronger than expected service-sector ISM data at mid-morning in NY, dropping quickly from the 1.3225 to 1.3131 as the market quickly dismissed chances of the Fed embarking on any form of fresh quantitative easing at next weeks FOMC meeting.

With both ISM indexes coming above expectations at 54.3 (services) and 55.4 (manufacturing) , this is no time for the Fed to hit the panic button.

The dollar’s mild rally was a repricing of that risk (which was stirred by yesterday’s WSJ report).

USD/JPY was boosted by the data and the rise in yields that went with it. Prices bounced from 85.75 to 86.40 on the news. It consolidated in a 85.15/35 range for much of the afternoon, about a JPY above the London lows.

GBP/USD, like EUR/USD was hit on the ISM data. Profit-taking accelerated once support at 1.5890/95 was lost. We fell as far as 1.5860 before rebounding. We end the session retesting the 1.5895 that acted as support on three occasions before giving way.

USD/CAD finally took out the sovereign bids in the 1.0200 area and slipped to 1.0160 before steadying.

AUD/USD gave ground a short while ISM,but not before rising through 0.9180 to trigger barriers. We dumped down quickly to 0.9135 after the push higher but recovered to end near range highs late in the session. Any sign that the US is not slipping into a double-dip recession helps keep hopes for reasonably robust global demand alive, a plus for commodity currencies.

Tomorrow, the BOE and ECB meeting are the highlights, along with US jobless claims. Friday is all about payrolls, payrolls, payrolls.