Risk appetite overall held firm, although with a slightly less confident tone on Friday as unease over the coronavirus impact persisted.

Risk appetite overall held firm, although with a slightly less confident tone on Friday as unease over the coronavirus impact persisted.

Expectations of US out-performance underpinned the dollar with the currency index at fresh 3-month highs with EUR/USD significantly below 1.1000. Sterling continued to lose ground amid underlying trade reservations.

The Euro was hampered in early Europe by weaker than expected German industrial orders data and remained on the defensive ahead of the New York open. ECB President Lagarde defended low interest rates and denied they were responsible for rising house prices, but there was no direct commentary on monetary policy or interest rates.

US jobless claims declined to 202,000 in the latest week from a revised 217,000 the previous week, although continuing claims did increase. Unit labour costs increased a provisional 1.4% for the fourth quarter, in line with market expectations. Challenger reported a 29% increase in layoffs for January to an 11-month high with significant restructuring in the tech sector.

The data overall has little impact with the US dollar maintaining a robust tone while commodity currencies were unable to gain any traction. Overall, markets expected the US to continue its out-performance relative to other major economies. A decisive Euro break below 1.1000 also helped reinforce negative sentiment with 3-month EUR/USD lows below 1.0970 as the dollar pushed to 15-week highs. The latest US monthly employment report is due on Friday with consensus forecasts for an increase close to 160,000. Expectations of a strong figure have been boosted by Wednesday’s ADP data which will tend to underpin the dollar into the release.

Global equities were unable to hold their best levels ahead of the New York open and bond yields edged lower which prevented a further USD/JPY attack on the 110.00 level against the yen. The US currency held firm, however, and bonds lost some ground in early US trading. There was a decline in volatility across asset classes and defensive yen demand remained lower.

The WHO stated that it was too early to tell whether the coronavirus is peaking, but Wednesday was the first day when the overall total of new cases declined which offered some hope and the S&P 500 index posted a fresh record closing high.

Sterling remained on the defensive on Thursday with a lack of positive factors and further underlying concerns that UK/EU trade friction would have a damaging impact. Expectations of a tough negotiating stance by the UK government fuelled underlying market unease, especially with no domestic data releases to divert attention. There were also reports that the US Administration was furious at the UK government’s Huawei decision which could have a negative impact on trade talks. Sterling failed to draw support from the solid tone in risk appetite as underlying sentiment remained cautious.

GBP/USD steadily lost ground with 6-week lows near 1.2920 while GBP/EUR dipped towards 1.1750. The latest retail sales survey from BDO recorded a 5.7% annual increase in the year to January, the strongest gain for 6 years, although the BDO also warned that the surge may not last with the GBP/USD recovery held below 1.2950.

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