Markets were continuing to monitor coronavirus developments and the potential for fresh regulations to help combat the Omicron variant.

Risk conditions have tended to dominate market moves during the next 24 hours. Confidence dipped on Monday amid increased concerns over the Omicron impact.

US bond yields remained at subdued levels amid unease over demand conditions.

European bourses also posted significant losses. Wall Street equities lost ground in early trading before recovering from intra-day lows. Risk appetite recovered from late in New York and there was a more constructive tone in Asia on Tuesday.

The dollar performance was again mixed with a net retreat against the Euro. EUR/USD stalled above 1.1300 and traded below this level on Tuesday. Sterling was hampered by vulnerable risk conditions, but GBP/USD again recovered from a test of 2021 lows near 1.3170. Commodity currencies were hurt by weaker risk conditions before securing a tentative recovery as risk conditions dominated.

The Euro-zone current account surplus was unchanged at EUR18bn for October while the 12-month surplus increased to EUR311bn from EUR186bn the previous year, although there was still a net deficit on the financial account which would limit underlying support.

In its latest monthly report, the Bundesbank stated that the German economy may contract this quarter as a resurgence in coronavirus infections force fresh curbs on activity. It also expects that inflation will remain above 4.0% for the next few months.

The Euro was resilient ahead of the New York open with further evidence of a covering of short positions against major currencies, especially with fragile risk conditions. There was also some support from the EUR/USD ability to hold above the 1.1200 level.

There were further concerns over developments surrounding Euro-zone energy prices as upward pressure continued. The sharp increase in costs will undermine activity as well as putting further upward pressure on inflation rates. This combination will make it even more difficult for the ECB to set monetary policy.

There were no significant US data releases during the day and no further commentary from Federal Reserve officials with markets also monitoring US Omicron developments. EUR/USD failed to hold above 1.1300 and drifted lower to 1.1280 on Tuesday as risk conditions again tended to dominate market moves.

US futures edged lower ahead of the New York open, but there was only a slight increase in yields and Treasuries rallied again as equities moved lower again after the Wall Street open. The 10-year yield held below 1.40% which limited US currency support.

The yen struggled to secure further significant support, but the dollar drifted lower against the Japanese currency with USD/JPY held below 113.50.

There were further doubts surrounding fiscal policy following Senator Manchin’s decision not to back the Biden Administration package. Wall Street equities did recover late in the session with the S&P 500 index closing 1.1% lower amid fragile risk conditions.

The Japanese government upgraded its assessment of the economy for the first time in 17 months which provided some reassurance. Overall risk appetite also recovered on Tuesday with a recovery in US futures helping to underpin regional bourses with Japan’s Nikkei 225 index gaining just over 2.0%.

Defensive yen demand eased slightly with USD/JPY trading around 113.75 while EUR/JPY traded above the 128.0 level with net gains to 128.30.

The UK CBI industrial orders index edged lower to 24 for December from 26 the previous month, but this was above consensus forecasts of 20 and close to record highs with the index substantially above historic averages. Exports orders also slowed slightly while companies reported a further solid increase in output. Cost pressures remained strong for the month with only a slight slowdown in the rate of increase in prices.

There were further concerns over the near-term spending outlook with reports of a sharp decline in shopper number in London over the weekend.

GBP/USD dipped below the 1.3200 level with lows near 1.3170, but the ability to avoid fresh 2021 lows helped trigger a limited recovery. The UK currency was, however, unable to make significant headway, especially with global equity markets moving lower again.

Markets were continuing to monitor coronavirus developments and the potential for fresh regulations to help combat the Omicron variant. The UK government did not announce fresh restrictions on Monday, but unease over the risks remained high.

The latest Lloyds Bank business confidence data held steady for December and wider risk appetite stabilised on Tuesday which lessened the threat of further selling. GBP/USD settled around 1.3220 with GBP/EUR around 1.1700.

Economic Calendar

Expected Previous
07:00 GBP Public Sector Net Borrowing(NOV) 15.40B 11.63B
07:00 CHF Trade Balance(NOV) 5.505B
07:00 German GfK Consumer Confidence (JAN, 2022) -2.7 -1.8
11:00 CBI Distributive Trades Survey(DEC) 39
13:30 USD Current Account Balance -191.0B -190.3B
13:30 CAD Retail Sales Ex Autos (M/M)(OCT) -0.20%
13:30 CAD Retail Sales (M/M)(NOV) -1.70% -0.60%
13:30 CAD New Housing Price Index (M/M) 0.90%
15:00 Euro-Zone Consumer Confidence(DEC) -6.8

*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.