China announced some further easing of coronavirus restrictions.

The Euro-Zone Sentix economic confidence index posted a significant recovery to -21.0 for December from -30.9 the previous month and significantly above consensus forecasts of -27.6.

According to Sentix, investor confidence has been boosted by hopes for mild winter weather conditions and high gas storage levels. There were also hopes that inflation has passed its peak which provided important relief.

The US ISM non-manufacturing index strengthened to 56.5 for November from 54.4 the previous month and significantly above consensus forecasts of 53.3.

There was a stronger pace of business growth for the month with a steady rate of growth in new orders and employment returned to growth, although job gains were very limited.

Export orders were notably weak for the month while there was only a slight easing of inflation pressures.

The stronger than expected services-sector data sparked expectations that the Federal Reserve would need to take a more aggressive policy stance to bring inflation under control.

After initial selling pressure, the dollar recovered ground with expectations that the Fed would have to maintain a hawkish stance. Wall Street losses contributing to defensive US currency demand.

China announced some further easing of coronavirus restrictions on Tuesday and there were reports of further announcements within the next 24 hours which helped underpin global risk sentiment.

BRC data recorded an annual like-for-like increase in retail sales of 4.1% in the year to November, but this implied a further decline in real sales.

The Reserve Bank of Australia increased interest rates by a further 25 basis points to 3.10% which was in line with consensus forecasts. There was no significant change in forward guidance which was slightly more hawkish than expected with indications that rates would be increased further.

The Euro gained initial support from the stronger than expected Sentix investor confidence data. Optimism over the Chinese coronavirus trends also underpinned the Euro. EUR/USD posted 5-month highs just below the 1.0600 level. Weaker risk appetite helped trigger renewed Euro losses later in the day. Stronger than expected US data also supported the dollar. EUR/USD dipped steadily lower to trade below 1.0500 and traded below this level on Tuesday.

The yen was unable to gain support from weaker equities. USD/JPY posted strong gains to highs near 136.90 on Monday and edged above 137.0 on Tuesday.

The Swiss franc also failed to gain support from weaker equities. EUR/CHF settled just below 0.9900 with net USD/CHF gains to 0.9430.

Sterling was again dominated by global risk conditions. GBP/USD was unable to hold 1.2300 and dipped below 1.2200. GBP/USD was held below 1.2200 on Tuesday with reservations over consumer spending.

Commodity currencies posted sharp losses as equities retreated and the US dollar recovered. AUD/USD posted sharp losses to below 0.6700. There was a net recovery after the RBA rate decision with AUD/USD around 0.6725. USD/CAD strengthened to near 1.3600 before stabilising.