Risk appetite remained more fragile on coronavirus concerns.

The Euro failed to gain any support from the ECB as Lagarde’s press conference was seen as lacking optimism with EUR/USD declining to 7-week lows. Euro losses pushed the dollar index to a 1-month high despite a mixed performance elsewhere.

Risk appetite remained more fragile on coronavirus concerns, although US equities rallied in late trading which provided relief and USD/JPY traded around 109.50.

Sterling made slight gains ahead of Friday’s key PMI business confidence data with EUR/GBP at 1-month lows.

The Canadian dollar rallied after Wednesday’s losses and commodity currencies pared overall losses.

Tight ranges prevailed ahead of Thursday’s New York open with markets monitoring global risks trends and EUR/USD near 1.1100. The ECB made no changes to interest rates at the latest policy meeting with the refi rate held at 0.0%. There was no change in forward guidance with bond purchases continuing at the current rate of EUR20bn per month for as long as necessary with quantitative easing set to end shortly before the first interest rate increase.

Bank President Lagarde stated that inflation has stabilised at low levels and is expected to increase slightly over the medium term. Data also pointed to some stabilisation in growth and the fiscal stance will continue to provide some economic support. Risks remained skewed to the downside but are less pronounced, and trade uncertainty has been reduced.

The Euro ticked higher only briefly on Lagarde’s initial remarks and then retreated steadily as German yields moved lower once again. Overall, markets were looking for a more optimistic tone from Lagarde and sold the Euro when the more positive tone was not forthcoming. Euro-zone consumer confidence also edged lower according to the January reading.

Risk appetite remained fragile during Thursday with markets continuing to monitor coronavirus developments in China. The quarantining of Wuhan and other nearby cities was an unsettling influence as markets were wary over the economic impact.

The World Health Organisation again decided against calling a global emergency over the coronavirus outbreak and US equities recovered ground later in the New York session which pushed USD/JPY back to near 109.50.

There were no significant domestic developments during Thursday and overall Sterling volatility declined slightly during the day. A more cautious tone surrounding global risk appetite had a limited negative impact on the UK currency. GBP/EUR edged higher to reach 1-month highs around 1.1888, but GBP/USD retreated to near 1.3100 on the firm dollar.

The latest PMI business confidence data on Friday will be scrutinised very closely and will be important for Sterling. Consensus forecasts are for a modest improvement in confidence for January, but markets will be looking for a more significant improvement after this week’s CBI report. If there is no significant recovery, expectations of a Bank of England interest rate cut will increase once again which would tend to put Sterling under renewed selling pressure.

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