Risk appetite gradually recovered during Monday amid relief that there was no immediate retaliation by Iran.
Risk appetite gradually recovered during Monday amid relief that there was no immediate retaliation by Iran, although tensions inevitably remained high.
Sterling was boosted in part by an upward revision to PMI data and EUR/USD made net gains before stalling at 1.1200. The dollar overall was unable to make net headway despite USD/JPY gains.
After initial strength, gold retreated sharply from 6-year highs as demand for defensive assets faded.
Risk appetite was relatively stable ahead of the New York open with the dollar fluctuating close to the 108.00 level. US equities pared losses in early New York and there was an easing of demand for defensive assets. Treasuries were little changed, although the dollar edged higher. The more positive tone persisted into the European close with USD/JPY strengthening to around 108.35. US equities closed higher which limited defensive demand for the Japanese currency and oil prices corrected lower.
The UK December PMI services-sector index was revised higher to 50.0 from the flash reading of 49.0. This release equalled a 6-month high, although it still signalled stagnation. New orders increased at the fastest pace for six months and business confidence hit a 15-month high as employment increased slightly. There was evidence that confidence had improved following the General Election and the forward-looking indicators will spark an element of optimism.
Prime Minister Johnson’s spokesman reiterated that there would be no extension to the UK implementation period and political tensions will increase again as the House of Commons returns to debate Brexit legislation. The overall environment will, however, be markedly different given the large Conservative Party majority.
Sterling sentiment remained stronger with GBP/EUR testing 1.1770 support while GBP/USD pushed to highs near 1.3175. CFTC data recorded a further small increase in net Sterling longs, limiting the potential for short-term buying. There was a limited GBP/USD correction on Tuesday to near 1.3150.
Economic Calendar
| Expected | Previous | ||
|---|---|---|---|
| 07:30 | CHF CPI (M/M)(DEC, 2019) | -0.10% | -0.10% |
| 07:30 | CHF CPI (Y/Y)(DEC, 2019) | -0.10% | -0.10% |
| 10:00 | Euro-Zone CPI (Y/Y)(DEC, 2019) | 1.30% | 1.00% |
| 10:00 | Euro - Zone Retail Sales (Y/Y)(NOV, 2019) | 2.20% | 1.40% |
| 10:00 | Euro - Zone Retail Sales (M/M)(NOV, 2019) | 0.50% | -0.60% |
| 10:00 | CPI (EU Norm) Prelim YY(DEC, 2019) | 0.30% | 0.20% |
| 10:00 | CPI (EU Norm) Prelim MM(DEC, 2019) | - | -0.20% |
| 10:00 | CPI (EU Norm) Final YY*(DEC, 2019) | 0.50% | 0.20% |
| 10:00 | CPI (EU Norm) Final MM*(DEC, 2019) | 0.20% | -0.30% |
| 10:00 | Euro-Zone Core CPI (Y/Y)(DEC 01, 2019) | 1.30% | 1.30% |
| 13:30 | USD Trade Balance(NOV, 2019) | -49.00B | -47.20B |
| 15:00 | USD Factory Orders(NOV, 2019) | 0.20% | 0.30% |
| 15:00 | USD ISM Non-Manufacturing PMI(DEC, 2019) | 54.5 | 53.9 |
| 15:00 | CAD Ivey PMI(M/M)(DEC, 2019) | - | 60 |
| 21:30 | AiG Construction Index(DEC, 2019) | - | 40 |