Risk appetite deteriorated further during Monday as coronavirus fears remained.

Risk appetite deteriorated further during Monday as coronavirus fears remained an important element with demand for defensive assets.

Equity markets declined with the S&P 500 index losing 1.5% while bond yields also dipped to fresh 3-month lows. The dollar secured net support and traded at 8-week highs.

The Euro was hampered by a weaker than expected German IFO business confidence report, with EUR/USD only just above 1.1000. Sterling drifted lower with pressure from weaker risk appetite and rate-cut speculation.

The dollar continued to gain an element of support on defensive grounds as risk appetite deteriorated and commodity currencies lost further ground during the day. EUR/USD edged weaker with 2020 lows around 1.1010 with the dollar index at 8-week highs. The Euro recovered only marginally on Tuesday as narrow ranges prevailed and the US currency corrected slightly lower.

Risk appetite deteriorated further ahead of the New York open with a fresh slide in global equity futures. The Japanese yen continued to gain defensive support as fears surrounding China’s coronavirus dominated market sentiment. Treasuries maintained a strong tone and the 10-year yield dipped to fresh 3-month lows near 1.60% which eroded dollar support.

The dollar did demonstrate some resilience and USD/JPY traded just below 109.00 at the European close.

There was some speculation that enough Republicans would break with the party line and vote for witnesses to be called in President Trump’s Senate impeachment trial, although the immediate impact was very limited.

The latest UK mortgage approvals data recorded an increase to 46,800 for December from a revised 44,100 the previous month and was above market expectations, although the data releases had very little impact with markets focussed firmly on global trade and risk conditions. Overall confidence in the global economic outlook deteriorated as coronavirus fears increased. UK equity markets remained under pressure and oil prices continued to lose ground.

The UK government confirmed that David Frost would lead the UK team on future relationship talks with the EU. Tough rhetoric from Irish Prime Minister Varadkar on the negotiations had some negative impact on Sterling sentiment.

GBP/EUR rallied towards the 1.1900 area despite underlying vulnerability while GBP/USD lost ground and dipped below 1.3050. Sterling remained on the defensive on Tuesday with on-going speculation that the Bank of England could cut interest rates this week.

Economic Calendar