Sterling recovered to trade little changed ahead of forthcoming UK risk events.

Narrow ranges prevailed on Monday with the US market holiday dampening activity.

Risk appetite was more cautious on Tuesday with unease over China’s coronavirus having some negative impact. Equities lost traction with USD/JPY back below 110.00.

The Euro secured a marginal recovery after Monday’s European close following reports of a trade truce between France and the US.

Sterling recovered to trade little changed ahead of forthcoming UK risk events.

Trading activity was inevitably curbed by the US Martin Luther King holiday and there were no major fundamental developments during the day. Recent US data releases continued to offer an element of dollar support, although a lack of conviction surrounding the other majors had a larger impact in supporting the US currency.

The Chinese yuan strengthened to a fresh 6-month high against the US dollar on Monday, although markets were wary over potentially choppy trading, especially given potential position adjustment ahead of the Lunar new-year holidays.

The Bank of Japan left monetary policy unchanged with interest rates at -0.1% and a commitment to keeping bond yields close to zero. There was also no change in the bank’s forward guidance, but there was a slight upgrading of its growth forecasts with the economy expected to benefit from the government’s fiscal stimulus.

The Chinese yuan weakened and there were some concerns that the coronavirus outbreak in China posed a greater threat to the regional economy. Asian equity indices moved lower and USD/JPY dipped below the 110.00 level. Markets are not expecting any impact from President Trump’s impeachment trial, but rhetoric will be monitored closely.

A spokesman for Prime Minister Johnson stated that there will be no alignment with EU rues after Brexit and that the UK is seeking a Canada-style free-trade agreement with the EU. There were, however, reports that Ireland would not sign up to any trade deal unless the UK signs up to equivalence in the way goods are produced in both the UK and EU.

Sterling lost ground early in Europe with GBP/USD lows around 1.2965. There was a tentative recovery later in the session with a return to near 1.3000 before encountering resistance while GBP/EUR registered marginal gains on the day to trade around 1.1720. Slightly greater optimism over the global economy provided an element of Sterling support, although markets continued to price in around a 70% chance of a Bank of England rate cut at next week’s policy meeting.

The latest labour-market data is due for release on Tuesday and a soft reading for employment and wages metrics would reinforce market expectations of a rate cut. Sterling was little changed and GBP/USD traded fractionally above 1.3000 in early Europe.

Economic Calendar

07:30World Economic Forum Annual Meetings--
09:30GBP Average Earning Including Bonus(NOV, 2019)3.40%3.20%
09:30GBP Claimant Count Change(M/M)(DEC, 2019)24.5K28.8K
09:30GBP Unemployment Rate(NOV, 2019)3.90%3.80%
10:00German ZEW Survey (Economic Sentiment)(M/M)(JAN)-10.7
10:00German ZEW Survey (Current Situation) (JAN)--19.9
10:00EUR Euro-Zone ZEW Survey (Economic Sentiment)(JAN)-11.2
13:30CAD Manufacturing Shipments (M/M)(NOV, 2019)--0.70%
23:30AUD Westpac Consumer Confidence(JAN)--1.90%

*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.