Risk appetite held steady with unease over near-term coronavirus developments offset by expectations of a recovery in demand later in 2020.

Risk appetite held steady with unease over near-term coronavirus developments offset by expectations of a recovery in demand later in 2020.

Global equities made net gains with an advance in China on Monday as the PBOC nudged interest rates lower. The dollar-maintained tone despite mixed domestic data with fresh 4-month highs.

EUR/USD remained under pressure below 1.0850 amid a lack of confidence in the Euro-zone. Sterling was unable to make further headway but held firm. Commodity currencies made tentative gains and the Swiss currency edged lower.

Euro-zone fourth-quarter GDP was confirmed at 0.1%, in line with expectations, although year-on-year growth dipped to 0.9% from an upwardly revised 1.2% previously. There had been some speculation over a weaker figure after the German economy failed to grow and the data sparked an element of relief, but with only marginal Euro gains. Underlying Euro-zone sentiment remained fragile as German political stresses also curbed support.

US retail sales increased 0.3% for January, in line with consensus forecasts, while underlying sales also matched expectations with a 0.3% increase, but control group sales were unchanged on the month.

Industrial production declined 0.3% for January as manufacturing output edged lower. The University of Michigan consumer confidence index strengthened to 100.9 for February from 99.8 previously with a small decline in current conditions offset by an improvement in expectations. The dollar overall maintained a very firm underlying tone with EUR/USD settling around 1.0830 at the European close and trading around fresh 33-month lows with no significant recovery.

US Treasuries posted gains on Friday with the 10-year yield below 1.60%. Wall Street equities were also held in tight ranges and the dollar was unable to make headway with no further USD/JPY attack on the 110.00 area.

There was a significant element of caution ahead of the weekend, especially with a US market holiday on Monday. Traders were wary of coronavirus developments and tended to pare risky positions which provided some yen protection. US equities closed with slight gains and USD/JPY settled close to 109.80 at the US close as narrow ranges prevailed.

Japanese GDP declined 1.6% for the fourth quarter of 2019 from 0.4% previously and below consensus expectations of a 1.0% decline with personal spending dipping after the sales tax increase. The data increased reservations over underlying economic trends, especially as the coronavirus will undermine the economy in the first quarter of 2020. Overall reaction was, however, limited with USD/JPY holding around 109.85 as the number of coronavirus cases continued to increase.

Bank of England Governor Carney stated that the bank is already seeing a rebound in business confidence and to some extent a firming in consumer confidence and he also took a slightly more optimistic stance on potential Brexit opportunities.

Sterling was still subjected to a correction during Friday following strong gains the previous day. There were still expectations that the change of Chancellor would lead to a more expansionary budget and lessen any potential for interest rate cuts.

CFTC data recorded a renewed increase in long Sterling positions, increasing the risk of selling pressure if forthcoming business confidence data is weaker than expected. Weekend reports suggested the March budget may be delayed which caused some uncertainty, but markets were still expecting a policy boost for the year ahead.

Markets were also still wary over EU trade negotiations with reports that the UK would refuse to abide by EU rules on tax and workers’ rights. Sterling held steady on Monday ahead of important domestic data releases this week.

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