The NIESR still estimated a GDP contraction of 9.8% for 2020 and the economy is forecast to decline around 6.0% for January as new lockdown measures take effect.

US retail sales data was much weaker than expected for December, especially for underlying sales.

Risk appetite dipped following the release with unease over near-term US and global demand trends despite optimism over longer-term vaccine developments. Wall Street equities posted significant losses with markets also uneasy over vaccine delays and global markets posted net losses.

The dollar gained ground as risk appetite deteriorated with a resumption of defensive demand. EUR/USD dipped below 1.2100 and the Euro remained on the defensive on Monday.

Sterling was resilient initially, but drifted lower amid the weaker risk conditions with GBP/USD below 1.3600. Commodity currencies were hurt by weaker equites and US dollar gains.

US retail sales declined 0.7% for December compared with consensus forecasts of a 0.2% decline and there was a downward revision to the November data to a decline of 1.4% from the first estimate of 1.1%. Underlying sales also declined 1.4% on the month, much weaker than the expected decline of 0.1%, and the control group registered a decline of 1.9% following the 1.1% retreat for November. The sales data triggered fresh concerns over near-term demand conditions.

The New York Empire manufacturing index edged lower to 3.5 for January from 4.9 previously and slightly weaker than consensus forecasts, although there was a slightly faster rate of growth in new orders. There was a slightly slower rate of growth in employment with a stronger rate of growth in prices.

Industrial production increased 1.6% for December, well above expectations of a 0.5% increase with little net impact.

The University of Michigan consumer confidence index retreated to 79.2 for January from 80.7 previously with a dip in current conditions and expectations while there was a significant increase in on-year inflation expectations to 3.0% from 2.5%.

There was a dip in risk appetite following the retail sales data which had an impact in boosting defensive dollar demand as global reflation bets were unwound.

The US currency also continued to gain from short covering and EUR/USD dipped to 5-week lows around 1.2075 as commodity currencies also faded.

CFTC data recorded a renewed increase in long non-commercial long positions to 156,000 in the latest week from 143,000 previously, maintaining the threat of position unwinding if the Euro fails to make headway.  The dollar maintained a firmer tone on Monday with EUR/USD around 1.2080.

There was a significant dip in risk conditions following the US retail sales with fears over a sharper than expected near-term dip in the US economy.

Risk appetite was also undermined by reports of delays in deliveries of the Pfizer vaccine to the US and Europe. Bond yields moved lower during the day and equity markets also lost ground which provided an element of yen support. USD/JPY settled around 103.90 at the New York close with EUR/JPY dipping to near 125.40.

Former Fed Chair Yellen will face congressional Senate hearings on Tuesday for her appointment as Treasury Secretary in the Biden Administration. According to reports, Yellen will rule out seeking a weaker US dollar with the currency value set by market forces.

Japan’s Reuters Tankan manufacturing index improved to -1 from -9 previously and the highest level since July 2019, but the non-manufacturing index slid to -11 from -4. China’s GDP increased 6.5% in the year to the fourth quarter from 4.9% previously and slightly above consensus forecasts of 6.2%. The increase in retail sales, however, was below expectations at 4.6% from 5.0%, maintaining reservations over domestic demand which will curb global growth.

Overall risk appetite remained more cautious in Asia which underpinned the yen and USD/JPY was held around 103.70.

Sterling edged lower ahead of Friday’s New York open with a more cautious risk tone helping to limit support while the better than expected November GDP data had little sustained impact. The latest NIESR data indicated that UK GDP increased 1.9% for December as the lockdown in England came to an end. This would be enough to deliver a small positive reading of 0.9% for the fourth quarter of 2020 compared with market expectations of a slight contraction.

The NIESR still estimated a GDP contraction of 9.8% for 2020 and the economy is forecast to decline around 6.0% for January as new lockdown measures take effect.

Weaker risk conditions hampered the UK currency in New York with a firmer dollar also a key element with a GBP/USD dip to below the 1.3600 level while GBP/EUR retreared slightly from 1.1270 highs.

CFTC data recorded an increase in long Sterling positions to 13,000 from 4,000 the previous week, limiting the scope for fresh buying support.

Economic Calendar

10:00CPI (EU Norm) Prelim YY(DEC, 2020)-0.20%-0.10%
10:00CPI (EU Norm) Prelim MM(DEC, 2020)-0.10%0.30%
10:00CPI (EU Norm) Final MM*(DEC, 2020)0.20%
10:00CPI (EU Norm) Final YY*(DEC, 2020)-0.30%-0.30%
13:15CAD Housing Starts(DEC, 2020)246.0K
13:30CAD Foreign Securities Purchase(NOV, 2020)6.92B
21:00NZIER Business Confidence (Q/Q)-40

*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.