Plenty of seesaw action today as high yielders first rallied in Asia, then dropped after cautious comments on sub-prime risk by newly appointed FSA chief Watanabe sent the Nikkei plunging, only to recover once again as European markets opened for business. Japan’s chief financial negotiator Yoshimi Watanabe made headlines today when he stated that he will monitor credit market losses carefully, which alarmed Asian investors ,sending the Nikkei sharply lower and lifting the yen in the process. Many of the high yieders were sold hard on the yen crosses and as a result of the liquidation euro, pound and the commdolars all weakened against the greenback.

However, the start of European trade stabilized the market, with the pound particularly boosted by better than forecast PMI services numbers. Services sector activity increased to 57.6 during August- significantly higher than market expectations of 56.5. The PMI service news comes on the heels of better manufacturing PMI data as well suggesting that despite the turmoil in the capital markets and a multi-decade high exchange rate the UK economy continues to fire on all engines.

Today’s data is unlikely to move BOE to hike rates at this week MPC meeting, but does increase the chances of 6% rates before year end. For the time being BOE chief Mervyn King and company are far more likely to focus on the state of UK money markets which continue to be very jittery with sterling 3 month Libor rates still unusually high as banks remain wary of extending credit. Nevertheless, should capital markets stabilize, UK along with Australia, will offer the strongest prospect of a rate hike this year, amongst industrialized nations as both economies continue to performing above expectations.

Finally in US today, traders will get a preview of Friday’s NFP data via the ADP report. Although the two datasets have diverged in the past, the most recent ADP readings have tracked the BLS report quite well. Most notably ADP accurately forecast the weakness in last months numbers and if it once again suggests a sub-100K print in the NFP’s the pressure on the Fed to lower rates will escalate. That may in turn rally US stocks, helping to put the bid back in the high-yielders as risk appetite will return.

Boris Schlossberg is a Senior Currency Strategist at FXCM.