Risk appetite held firm on optimism over US-China trade developments and solid Chinese industrial data.

Risk appetite held firm on optimism over US-China trade developments and solid Chinese industrial data. US equities pushed to fresh record highs with expectations of supportive Fed policies also boosting confidence.

EUR/USD pushed to 1-week highs on slightly more positive ECB rhetoric before fading.

The dollar recovery was enhanced by the batch of broadly favourable US data with USD/JPY at 8-month highs above 110.00. Sterling regained further ground as hopes for a stronger global economy underpinned demand.

ECB minutes from December’s meeting stated there were some indications of higher core inflation with solid upward movement in the rate excluding holiday prices. According to the bank, growth dynamics were also stabilising. The commentary dampened expectations of a very dovish monetary policy and EUR/USD pushed to 1-week highs around 1.1170.

Fed Governor Bowman stated that current interest rates are likely to be appropriate this year, reinforcing expectations that rates would stay at low levels and the NAHB housing index edged only marginally lower to 75 from the 20-year high of 76 last month. As dollar confidence improved, EUR/USD retreated to near 1.1130 before a slight recovery on Friday.

There was some caution over US-China trade outlook following reports that Chinese Vice-Premier Liu had stated it would be unwise to immediately start phase-two negotiations, although overall trade sentiment remained positive.

Chinese fourth-quarter GDP data met expectations at 6.0% and equalling 27-year lows. Industrial production growth bet market expectations at 6.9% from 6.2% previously while retail sales growth was unchanged at 8.0%. The data overall offered some reassurance over the Chinese outlook which underpinned risk appetite. Asian equity markets were mixed, but sentiment held firm and USD/JPY pushed to 8-month highs just above 110.25 ahead of potential pre-weekend position adjustment.

There were no major domestic developments during Thursday with Sterling gaining an element of support from the firm tone in global risk appetite. Hopes for a stabilisation in global trade dynamics also provided net UK currency support. There was a also a slight shift in interest rate futures with traders slightly less confident that interest rates would be cut at the January meeting. GBP/USD edged higher to trade around 1.3070 while GBP/EUR traded around the 1.1750 area.

The latest UK retail sales data will be released on Friday with expectations of a small net gain after November’s decline. Next week’s data releases will, however, be more important with the labour-market survey and flash January business confidence data. Sterling edged higher on Friday with firm global risk conditions continuing to provide an element of support.

Economic Calendar

07:30CHF PPI (M/M)(DEC, 2019)--0.40%
07:30CHF PPI (Y/Y)(DEC, 2019)--2.50%
09:30GBP Retail Sales (Y/Y)(DEC, 2019)-1.00%
09:30GBP Retail Sales (M/M)(DEC, 2019)--0.60%
10:00CPI (EU Norm) Prelim MM(DEC, 2019)-0.20%
10:00CPI (EU Norm) Prelim YY(DEC, 2019)-0.50%
10:00CPI (EU Norm) Final MM*(DEC, 2019)-0.10%0.20%
10:00CPI (EU Norm) Final YY*(DEC, 2019)0.40%0.50%
13:30USD Building Permits(DEC, 2019)1.468K1.474K
13:30USD Building Permits (M/M)(DEC, 2019)-0.90%
13:30USD Housing Starts(DEC, 2019)1.375M1.365M
13:30USD Housing Starts (M/M)(DEC, 2019)-3.20%
14:00FOMC Harker Speech--
14:15USD Capacity Utilization(DEC, 2019)77.10%77.30%
14:15USD Industrial Production(DEC, 2019)-0.20%1.10%
15:00USD JOLTs Job Openings(NOV, 2019)7.233M7.267M
15:00USD Michigan Consumer Sentiment(JAN 01)99.399.3
17:45FOMC Governor Keith Randal Quarles Speech--
18:00USD Baker Hughes US Oil Count-659

*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.