Risk conditions remained more positive during Wednesday with hopes that the Omicron will lead to milder illnesses.

Risk conditions remained more positive during Wednesday with hopes that the Omicron will lead to milder illnesses which would pose less of a threat. Position adjustment was also significant ahead of the holiday period.

US bond yields edged lower during the day, although ranges were narrow. Wall Street equities posted further gains as market sentiment remained firm.

The dollar overall lost ground with a lack of defensive support. EUR/USD moved above 1.1300 to near 1.1350 with only a slight correction. Sterling was supported by firm risk appetite and further short covering with GBP/USD gains to around 1.3350.

Commodity currencies posted firm gains as risk appetite held firm and the US dollar drifted lower.

ECB council member Holzmann stated that in an extreme scenario interest rates could be increased next year. Holzmann has been a hawkish member on the committee and market expectations were still that the central bank would maintain a dovish stance next year even with a surge in energy prices.

There were further reservations surrounding the near-term Euro-zone outlook as countries continued to tighten restrictions in order to slow the spread of Omicron and curb the increase in hospitalisation rates. Nevertheless, the Euro edged higher into the New York open with a EUR/USD challenge on 1.1300.

The Chicago Fed National Activity index edged lower to 0.37 for November from a revised 0.75 the previous month.

US consumer confidence strengthened to 115.8 for December from a revised 111.9 the previous month and above consensus forecasts of 110.8. Although there was a slight retreat in the current conditions component, this was more than offset by a stronger reading for expectations with consumers more confident over making major purchases. There was, however, slightly reduced confidence in the labour market. Inflation expectations also retreated slightly from the 13-year high recorded in November, but the Federal Reserve will remain uneasy over the risk that expectations will become un-anchored.

Existing home sales increased to an annual rate of 6.46mn for November from 6.34mn in October, but slightly below market expectations.

The dollar was unable to make any headway and was undermined by seasonal selling, together with position adjustment and positive risk conditions.

EUR/USD secured a further limited advance to near 1.1340 late in the European session before a slight correction. Tight ranges prevailed on Thursday with EUR/USD holding around 1.1335 as firm risk conditions limited potential demand for the US dollar into the Christmas holiday period.

There was choppy trading in US Treasuries after the New York open with yields edging lower. Wall Street equities posted a limited advance which limited potential demand for the Japanese currency. USD/JPY secured a limited net advance to 114.30 after the US open.

Narrow ranges prevailed with USD/JPY retreating to near 114.10 as overall losses for the currency offset the impact of strong risk conditions.

Commodity currencies posted a further strong recovery against the dollar as equity markets posted solid gains while defensive yen demand faded.

Bank of Japan Governor Kuroda reiterated that the central bank would continue with powerful monetary easing through quantitative easing. He also stated that the bank was not directly targeting the exchange rate, although he added that yen deprecation overall has a net positive impact on the Japanese economy.

The latest US PCE prices data will be monitored closely on Thursday with a particular focus on the bond market as the core rate is expected to hit the highest level since 1989. Demand for the yen remained weak and USD/JPY edged higher to the 114.20 area with EUR/JPY near 129.50 as the Chinese central bank nudged the yuan lower.

There was little impact from the UK data releases with markets focussed on risk conditions despite underlying reservations over demand conditions. Overall market sentiment held firm during the European session and there was also evidence of a covering of short Sterling positions ahead of the holiday season.

Sterling posted net gains ahead of the New York open and GBP/USD pushed above the 1.3300 level while GBP/EUR rallied above 1.1775.

The UK currency sustained a stronger tone into the European close despite a further tightening of coronavirus restrictions by the devolved UK administrations.

Markets remained wary over Omicron developments, especially with the UK recording new daily infections of over 100,000 on Wednesday, but there was further optimism that the severity of cases will be lower. Risk appetite held firm on Thursday with GBP/USD holding close to 1.3350 and GBP/EUR just below the 1.1800 level.

Economic Calendar

Expected Previous
09:00 Business Confidence(DEC) 116
13:30 USD Durable Goods Orders Ex Transportation(NOV) 0.50% 0.50%
13:30 USD Durable Goods Orders (M/M)(NOV) -0.40%
13:30 USD Personal Income (M/M)(NOV) 0.20% 0.50%
13:30 USD Personal Spending (M/M)(NOV) 1.30%
15:00 USD Michigan Consumer Sentiment(DEC 01)
15:00 USD New Home Sales(NOV) 745B
15:00 USD New Home Sales Change(NOV) 0.40%
23:30 JPY National CPI (Y/Y)(NOV) 0.10%
23:30 JPY National CPI Ex-Fresh Food (Y/Y)(NOV) 0.10%

*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.