There was caution ahead of the raft of central bank policy decisions later this week.
Risk appetite was weaker during Monday amid increased reservations over Omicron developments with a surge in infections. There was caution ahead of the raft of central bank policy decisions later this week.
US longer-term bond yields moved lower despite near-term inflation concerns. Wall Street equities retreated amid the more defensive risk tone. Global bourses also moved lower although losses were contained.
The dollar secured net gains, primarily against risk orientated currencies. EUR/USD recovered from intra-day lows, but was held below 1.1300 on Tuesday. Sterling was hampered by risk aversion and Omicron concerns with GBP/USD near 1.3200 despite firm labour-market data.
Commodity currencies posted significant losses amid fragile risk appetite, but with a recovery from intra-day lows.
The Euro moved lower ahead of Monday’s New York open with the single currency hampered by concerns over geo-political tensions with a particular focus on the Russia-Ukraine tensions. There were reservations over the risks of an escalation in tensions and there will also be the threat of a disruption to energy supplies which would also have an adverse impact on the economy, especially with existing concerns over supplies.
There were also further concerns over the potential for a rapid spread of the Omicron variant within the Euro-zone which would risk further damage to the economic outlook. EUR/USD dipped to lows near 1.1260 before stabilising and recovering some ground with some evidence of a covering of short Euro positions given fragile risk conditions as markets shied away from aggressive carry trades given less confident risk conditions.
There was also position adjustment ahead of Wednesday’s Federal Reserve policy statement. There are expectations that the central bank will move towards a faster pace of slowing asset purchases. There are also expectations that the latest economic projections will see an increase in interest rate forecasts by individual Fed members. The dollar was, however, hampered to some extent by expectations that a hawkish policy stance had already been priced in.
Overall, EUR/USD consolidated around the 1.1285 level at the European close while commodity moved lower against the US dollar.
The US dollar held firm on Tuesday with EUR/USD trading around 1.1280 with expectations of a dovish ECB stance limiting net support.
US Treasuries strengthened further in early New York on Monday with the 10-year yield dipping below 1.45%. Wall Street equities dipped after the US open, but the US currency was broadly resilient with USD/JPY settling around 113.50.
Trading ranges remained narrow later in the session with no significant US data releases while markets monitored US Omicron developments closely. Wall Street equities traded lower with the dollar unable to make any headway while generally narrow ranges prevailed.
The Bank of Japan added liquidity aggressively for the second successive day on Tuesday as it looked to counter a sharp increase in short-term interest rates.
US equity futures edged higher on Tuesday, although regional bourses were generally lower amid a more fragile risk tone.
The dollar was held in tight ranges and USD/JPY traded around 113.60 in early Europe amid a firm overall tone with EUR/JPY just above 128.00.
Sterling was able to resist renewed selling pressure at Monday’s European open with no GBP/USD move to attack the 1.3200 level. There were important reservations over the Omicron variant, especially with Health Secretary Javid warning that the variant was spreading at an alarming rate, especially in London.
The latest evidence also suggested that there had been a sharp drop in public transport use as governments guidance again called on employees to work at home where possible. The main focus at this stage was on accelerating the vaccine booster programme. In this context, there were hopes that a strong booster programme could give the UK a relative advantage in global terms, but there were still important concerns over the implications of a surge in infections.
Bank of England Governor Bailey stated that he did not expect that the Omicron variant would not cause market turmoil with no direct comments on monetary policy ahead of Thursday’s meeting. Overall, GBP/USD settled around 1.3220 after failing to hold above the 1.3250 level while GBP/EUR posted a limited net advance to the 1.1760 area as global risk appetite remained generally fragile.
The latest UK labour-market report recorded a larger than expected decline in jobless claims with unemployment declining to 4.2% from 4.3% while headline average earnings slowed to 4.9% from 5.8%, but above expectations of 4.6%. Reaction was muted despite firm data with GBP/USD holding only just above 1.3200.
|07:00||GBP Average Earning Including Bonus(OCT)||4.60%||5.80%|
|07:00||GBP Unemployment Rate(OCT)||4.20%||4.30%|
|07:00||GBP Claimant Count Change(M/M)(NOV)||-14.9K|
|07:30||CHF PPI (M/M)(NOV)||0.60%|
|07:30||CHF PPI (Y/Y)(NOV)||5.10%|
|10:00||Euro-Zone Industrial Production (M/M)(OCT)||-0.50%||-0.20%|
|10:00||Euro-Zone Industrial Production (Y/Y)(OCT)||4.10%||5.20%|
|13:30||USD PPI Ex Food & Energy (Y/Y)(NOV)||6.80%||6.80%|
|13:30||USD PPI Ex Food & Energy (M/M)(NOV)||0.40%|
|13:30||USD PPI (M/M)(NOV)||0.60%|
|13:30||USD PPI (Y/Y)(NOV)||8.60%|
|23:30||AUD Westpac Consumer Confidence(DEC)||0.60%|