The global risk-appetite tone improved on hopes for monetary and fiscal stimulus measures.

The global risk-appetite tone improved on hopes for monetary and fiscal stimulus measures from major economies.

Equities gained ground in further choppy trading while benchmark bond yields moved higher with the US yield curve not inverted.

The dollar secured net gains to 2-week highs amid some more hawkish Fed rhetoric while European currencies being out of favour.

The yen and Swiss franc edged lower amid a limited dip in defensive demand while commodity currencies secured some support.

Demand for precious metals also declined amid more favourable risk conditions. Sterling drifted lower amid on-going political concerns and a fading of short covering.

The dollar overall maintained firm tone with the trade-weighted index hitting 2-week highs. The Italian opposition PD Party stated that it had constructive talks with the 5-Star Party over a new government, maintaining underlying uncertainty. EUR/USD declined to near 1.1070 before securing a fractional recovery and trading around 1.1085 on Tuesday.

Bank of England Governor Carney stated that he didn’t see negative interest rates as an option at this stage. He was also opposed to a change in the 2% inflation target with the rhetoric having little impact on currency markets. Sterling was unable to derive support from a firmer tone in global risk appetite as political considerations remained dominant.

In a letter to the EU ahead of talks later this week, Prime Minister Johnson stated that he wanted a deal, but reiterated that there would be no formal negotiations with the EU until the backstop is dropped.

Sterling lost ground amid underlying fears that a tough UK stance in this week’s talks with EU leaders would invite a frosty response with no evidence of any shift in the underlying negotiating positions and fears over deadlock.

GBP/USD dipped to lows near 1.2100 before recovering some ground while GBP/EUR advanced to 1.1000 before fading again. Markets will continue to monitor political developments closely in the short term with Sterling unable to gain support on Tuesday.

Economic Calendar