Global risk appetite overall was slightly more fragile on Monday amid on-going global growth reservations.

US equities, however, posted fresh record highs and confidence strengthened in Asia on Tuesday amid hopes new coronavirus cases were slowing.

The dollar continued to gain from a lack of confidence in other majors with the currency index at fresh 4-month highs as EUR/USD approached 1.0900.

Sterling stabilised, but on-going trade reservations limited support. Commodity currencies regained some ground on Tuesday with AUD/USD back above 0.6700. The yen and franc lost some ground on Tuesday, but USD/JPY held just below 110.00.

The Euro-zone Sentix investor confidence index declined slightly to 5.2 for February from 7.6 the previous month, although this was slightly above consensus forecasts. German political uncertainty had some impact in curbing Euro support.

The US employment trends index strengthened to 110.2 for January from a revised 108.8 previously. Fed Governor Bowman reiterated that the US outlook was very favourable with inflation set to rise gradually to target. San Francisco Fed President Daly stated that inflation a bit above target is better than a bit below in today’s environment. Philadelphia head Harker stated that the central bank should hold rates steady for a while, watching how developments and data unfold before taking action.

Underlying concerns over the coronavirus impact on global growth continued to have a significant impact in currency markets. There were further expectations that the US would out-perform other major economies given its lower dependence on trade flows which continued to provide net dollar support. Commodity currencies retreated again during the day and the dollar index pushed to fresh 4-month highs as EUR/USD retreated to lows near 1.0900.

President Trump again called for lower interest rates and the issue of Fed Chair Powell will move into sharper focus ahead of November’s Presidential election. Powell will testify to Congress on Tuesday and will be reluctant to deviate far from recent commentary. He is, however, likely to be pressed on the external risks, including the coronavirus and may be cross-examined on the strong dollar with potential volatility. The US currency held firm on Tuesday with EUR/USD at 4-month lows just above 1.0900.

Chinese President Xi stated on Monday that the situation regarding the coronavirus outbreak is still severe. According to Xi, there will be more decisive measures to contain the spread in Hubei with increased spending on clinically-effective drugs.

There were further reports that many Chinese companies were looking for bank loans to soften the coronavirus impact. There were also cautious comments from WHO officials over transmission trends and the spread of the virus among people who had not been to China also raised concerns. In this environment, risk appetite was relatively cautious.

US equities posted limited gains, but bond Treasuries made net gains and lower bond yields undermined the dollar as USD/JPY was held around 109.75 at the European close.

Risk appetite was slightly more positive in Asia on Tuesday as the rate of new coronavirus cases slowed slightly. Equity markets made headway and Treasuries edged lower, although Japanese markets were closed for a holiday. USD/JPY traded just below 110.00 as the Chinese yuan held steady.

Sterling remained under pressure in early Europe on Monday as sentiment remained negative on underlying concerns over trade negotiations, especially with reports that EU governments would call for a tougher negotiating stance in forthcoming negotiations. There was a tentative recovery during the day with the currency gaining some support on longer-term valuation grounds.

GBP/USD peaked close to 1.2950 before fading again amid wider US gains while GBP/EUR rallied towards 1.1830. BRC data recorded no change in underlying retail sales for January and Sterling was unable to make headway in early Europe as GBP/USD held just above 1.2900 with firmer risk appetite having little overall impact.

The latest GDP and industrial production data will be released on Tuesday with market expectations of a limited recovery from November’s very weak release with global risk appetite also likely to have a significant Sterling impact.

Economic Calendar

09:30United Kingdom GDP (Q/Q)0.40%0.40%
09:30United Kingdom GDP (Y/Y)1.10%1.10%
09:30GBP Total Business Investment (Q/Q)-0.50%-0.40%
09:30GBP Industrial Production (Y/Y)(DEC, 2019)--1.60%
09:30GBP Industrial Production (M/M)(DEC, 2019)--1.20%
09:30GBP Manufacturing Production (Y/Y)(DEC, 2019)--2.00%
09:30GBP Manufacturing Production (M/M)(DEC, 2019)--1.70%
09:30GBP Trade Balance Non EU(DEC, 2019)-1.73B
09:30GBP Trade Balance(DEC, 2019)--5.26B
15:00USD JOLTs Job Openings(DEC, 2019)7.233M6.800M
15:00Fed's Chair Powell Testifies--
21:45NZD Electronic Card Retail Sales (Y/Y)(JAN 01)-3.90%
21:45NZD Electronic Card Retail Sales (M/M)(JAN 01)--0.80%

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.