Sterling made net gains on Wednesday with fresh rumours of a trade deal on Wednesday.
Risk appetite was generally slightly more cautious on Tuesday amid unease over near-term coronavirus developments.
Wall Street equities were held in tight ranges, although the Nasdaq index posted a record high. President Trump’s opposition to the relief Bill triggered fresh uncertainty, although a call for larger direct payments prevented a slide in risk appetite.
The dollar gained significant ground into Tuesday’s London fix as position adjustment dominated, but failed to hold the gains. EUR/USD retreated towards 1.2150 before recovering to near 1.2200 in choppy trading.
Sterling dipped as the EU rejected a UK fishing compromise, but rallied amid reports that a deal was still possible on Wednesday with very choppy conditions. Commodity currencies dipped as the US dollar gained ground before paring losses.
The Euro held a firm tone ahead of Wednesday’s New York open, but EUR/USD was unable to sustain a brief move above the 1.2250 level as the dollar proved resilient. The US currency continued to draw support from concerns over the new coronavirus variant amid a slightly more defensive risk tone.
The final reading for US third-quarter GDP growth was revised higher to 33.4% from the second reading of 33.1% which had no significant impact.
Consumer confidence declined to 88.6 for December from 92.9 previously and well below market expectations of 97.0 for the month. There was a sharp decline for the current conditions index and confidence in the labour market also deteriorated on the month, but the expectations element did edge higher on the month. Existing home sales declined to an annual rate of 6.69mn from a revised 6.86mn the previous month with reports that sales were undermined by low inventories for the month.
The Philadelphia Fed non-manufacturing index was little changed at 5.6 from 5.3 previously as the services sector was again undermined by coronavirus restrictions.
There was fresh dollar buying following the US data releases with commodity currencies also losing traction. There was sharp Euro selling into the London fix and EUR/USD retreated to lows near 1.2160. The dollar edged lower on Wednesday with EUR/USD around 1.2185 and position adjustment will remain a significant element.
Brexit developments will also have an impact on the Euro with the single currency likely to make net gains if agreement is reached with losses if deadlock persists.
The dollar maintained was held in narrow ranges during Tuesday and after initial losses, there was a gradual recovery amid wider gains and USD/JPY moved back above the 103.50 level. There was further position adjustment during the day with the Euro edging lower against the Japanese currency.
Risk appetite dipped after the New York close as President Trump stated that he would not sign the coronavirus relief Bill and demanded changes from Congress. Equity futures dipped lower, especially with Trump also issuing another round of pardons. Sentiment was mixed, however, with Trump and Congressional Democrats backing direct payments of $2,000 compared with $600 in the current legislation. The US currency was also hampered by longer-term deficit concerns and the political uncertainty reinforced choppy trading conditions, especially with a lack of liquidity.
Dollar moves against the yen were still relatively limited as USD/JPY settled just below 103.50 in early Europe on Wednesday. Position adjustment will remain an important market factor during Wednesday with the scope for choppy trading.
Sterling held firm in early Europe with little impact from the data releases, although underlying confidence in the fundamentals remained notably fragile. In particular, there were concerns over a further jump in the budget deficit due to fresh coronavirus restriction and fears over a further tightening by early 2021.
Bank of England chief economist Haldane stated that the economy was still in a deep hole, but was hopeful of a rapid bounce in activity due to the vaccine. Transport disruption continued, although the government indicated that a deal with France to re-open the border was close.
Markets continued to monitor Brexit rumours closely and after the New York open, sources indicated that the UK fishing offer had been rejected by the EU side.
EU chief negotiator confirmed that the UK offer on fisheries was not acceptable, but also stated that some progress had been made and that there was a final push to secure agreement. GBP/USD dipped to lows below 1.3350 while GBP/EUR posted net losses to 1.0935 before a retreat to 1.0990 at the European close.
There was further choppy trading with the lack of liquidity an important element as trading volumes declined. There was some relief that the French border has been re-opened.
Sterling made net gains on Wednesday with fresh rumours of a trade deal on Wednesday also supportive, although sentiment was hampered by reports of further coronavirus restrictions from December 26th. GBP/USD strengthened to 1.3420 with GBP/EUR retreating to 1.1000. There will be very choppy trading during the day as markets react to headlines, especially with trading volumes low ahead of the holiday period.
|13:30||USD Personal Income (M/M)(NOV)||-0.70%|
|13:30||USD Personal Spending (M/M)(NOV)||0.50%|
|13:30||USD PCE Core Price Index (Y/Y)(NOV)||1.40%|
|13:30||USD PCE Core Price Index(M/M)(NOV)||0.20%|
|13:30||CAD GDP (M/M)(NOV)||0.80%|
|13:30||USD Continuing Jobless Claims||5558K||5508K|
|13:30||USD Initial Jobless Claims||885K||885K|
|14:00||US House Price Index (M/M)(OCT)||1.70%|
|15:00||USD Michigan Consumer Sentiment(DEC 01)||77||77|
|15:00||USD New Home Sales(NOV)||970B||999B|
|15:00||USD New Home Sales Change(NOV)||-0.30%|