Global risk appetite was more cautious on Tuesday as near-term fears over coronavirus developments offset longer-term vaccine optimism.
Global risk appetite was more cautious on Tuesday as near-term fears over coronavirus developments offset longer-term vaccine optimism. Equity markets edged lower with pressure for a correction after strong gains also a significant factor. The dollar lost some ground and retreated to 1-week lows amid unease over the US spending trends.
EUR/USD posted slight net gains but was held below 1.1900. Sterling secured net gains amid hopes that trade talks were grinding towards a deal with global recovery hopes also supportive. Commodity currencies corrected weaker amid near-term coronavirus concerns, but US dollar losses provided support.
The Euro maintained a firm tone ahead of the New York open as firm risk conditions undermined demand for the US currency. EUR/USD strengthened to highs just below 1.1900, but was unable to make a challenge on this level, especially with disagreement over the EU budget hampering sentiment.
US retail sales increased 0.3% for October following a downwardly-revised increase of 1.6% for September and slightly below consensus forecasts of 0.5%. Underlying sales also missed estimates with a 0.2% increase while the control group increase was held to 0.1% for the month following a 0.9% gain the previous month.
Industrial production increased 1.1% for October after a 0.4% decline the previous month and slightly above consensus forecasts.
Elsewhere, the NAHB housing index strengthened to a record high of 90 from 85 previously as the very low level of interest rates continued to spur demand in the housing sector. Import prices declined 0.1% on the month with a 1.0% year-on-year decline.
Fed Chair Powell stated that the economic recovery has significant downside risks in the short term. He reiterated that the central bank would use all tools to support the economy. He reiterated that the economy also needed additional fiscal support and very low yields continued to curb US currency support.
The dollar was unable to gain any traction, especially after the downbeat comments from Powell, although EUR/USD drifted lower towards 1.1860 at the European close. The US currency overall was unable to gain territory on Wednesday with EUR/USD edging higher to 1.1880.
There was a further degree of optimism over the 2021 global outlook which tended to undermine potential dollar demand. From a shorter-term perspective, there were increased reservations over the US outlook as coronavirus cases continue to increase. Unease over the US economic outlook could be offset by a fresh bout of defensive demand if equity markets slide. The dollar was unable to gain any support and USD/JPY retreated to lows near 104.10.
Majority leader McConnell stated that the Senate still wants to pass more covid aid, but there are no signs of serious talks. The Senate blocked the nomination of Shelton as a Federal Reserve Governor, although the Republicans will look to bring the vote back to Congress later this month.
Equities drifted lower on Wednesday as unease over short-term economic developments offset longer-term optimism. The Chinese yuan maintained a strong tone close to 29-month highs with USD/JPY dipping to test support just below 104.00 as the yen maintained a strong tone on the crosses.
In comments on Tuesday, Bank of England Governor Bailey stated that quantitative easing in a time like this can prevent an unwarranted tightening of financial conditions. As far as the economy is concerned, he noted that there is now some light at the end of the tunnel, but here is no room for complacency.
There were source reports that a Brexit trade deal could be reached by early next week, although there was still a high degree of uncertainty over the outlook. EU Chief Negotiator Barnier is expected to brief EU Ambassadors on Friday and there was also speculation of further delays. In this context, there will be pressure for some measures to alleviate border stresses from January 2021. Political rhetoric will continue to be watched very closely.
Sterling gained an element of support from expectations of a strong global rebound in 2021 which would tend to benefit the UK economy and currency.
Bank of England Deputy Governor Ramsden stated that the bank stood ready to take whatever additional action is necessary to reach the 2% inflation target.
GBP/USD settled above 1.3250 with GBP/EUR strenghtening to near 1.1170. There were some reports that France had made concessions on fishing which helped underpin Sterling sentiment on Wednesday and GBP/USD held above 1.3250 in early Europe and near 1.3280. The UK CPI inflation rate increased to 0.7% from 0.5% with the underlying rate at 1.5% from 1.3% with EUR/GBP just above 0.8950 as political developments dominated.
|07:00||GBP Core CPI (Y/Y)(OCT)||1.30%||1.30%|
|07:00||GBP CPI (M/M)(OCT)||-0.10%||0.40%|
|07:00||GBP CPI (Y/Y)(OCT)||0.60%||0.50%|
|07:00||GBP PPI Core Output (Y/Y)(OCT)||0.4||0.3|
|07:00||GBP PPI Output (Y/Y)(OCT)||-0.70%||-1.60%|
|07:00||GBP PPI Input (Y/Y)(OCT)||-2.50%||-3.70%|
|07:00||GBP PPI Input (M/M)(OCT)||0.10%||1.10%|
|10:00||Euro-Zone Core CPI (Y/Y)(NOV 01)||0.20%||0.20%|
|10:00||Euro-Zone CPI (Y/Y)(OCT)||-0.30%||-0.30%|
|10:00||Euro-Zone CPI (M/M)(OCT)||0.20%|
|12:30||CAD Retail Sales Ex Autos (M/M)(SEP)||0.50%|
|12:30||CAD Retail Sales (M/M)(SEP)||0.40%|
|13:30||Bank of Canada Core CPI (M/M)(OCT)||0.10%|
|13:30||Bank of Canada Core CPI (Y/Y)(OCT)||1.00%|
|13:30||CAD CPI (M/M)(OCT)||-0.10%|
|13:30||CAD CPI (Y/Y)(OCT)||0.50%|
|13:30||USD Building Permits (M/M)(OCT)||4.70%|
|13:30||USD Building Permits(OCT)||1.520M||1.545M|
|13:30||USD Housing Starts(OCT)||1.457M||1.415M|
|13:30||USD Housing Starts (M/M)(OCT)||1.90%|