UK government borrowing surges.

On Wednesday, the Bank of Japan again engaged in another unscheduled round of bond buying in an attempt to cap yields after the high volatility seen during Tuesday. The 2-year yield, however, increased above zero for the first time since 2015 following Tuesday’s move to adjust the target band for the 10-year yield.

The yen gained further strong support on Tuesday with a further round of aggressive position adjustment and a covering of short positions. USD/JPY slumped to fresh 4-month lows near 130.50 but there was a correction on Wednesday as markets attempted to stabilise.

The US housing starts were unchanged at an annual rate of 1.43mn for November and marginally above consensus forecasts.

There was, however, a sharp decline in housing permits to 1.34mn from 1.51mn. This was well below expectations of 1.49mn and the weakest reading July 2020.

The December Philly Fed non-manufacturing index declined to -17.1 for December from -13.6 the previous month with a slight decline in revenue and further decline in new orders.

There was a slower growth in employment for the month while inflation pressures eased on the month. Companies were, however, more optimistic over the six-month outlook, especially for their own companies.

Liquidity in global markets will fade ahead of the holiday period surrounding Christmas and New Year with position adjustment also a key element. This will maintain the potential for sharp moves across asset classes over the next 48 hours.

The latest UK government borrowing data recorded a surge to £22.0bn for November from £8.1bn the previous year which was the highest November deficit on record as debt interest payments also increased sharply.

Euro-Zone consumer confidence edged higher to -22.2 for December from -23.9, but marginally below expectations.  The Euro continued to gain some underlying support from the hawkish ECB stance.

Higher yields provided some dollar protection. There was choppy trading with EUR/USD holding just above 1.0600.

Higher US yields failed to undermine the yen after the Bank of Japan move to widen the trading band for yields. There was further sharp position adjustment. USD/JPY dipped sharply to 4-month lows at 130.60 before a recovery to around 132.00 on Wednesday.

The Swiss franc secured limited net gains. EUR/CHF edged lower to 0.9835 with USD/CHF settling around 0.9265.

Global trends tended to dominate Sterling moves with position adjustment also a significant element, although markets were looking at underlying fundamentals. GBP/USD dipped lows at 1.2100 before a recovery to just above 1.2150 on Wednesday.

Commodity currencies recovered from intra-day lows amid choppy conditions. AUD/USD found support below 0.6650 with a tentative bounce to 0.6670. USD/CAD retreated to lows below 1.3600 before trading just above this level.

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