Global risk appetite secured a notable improvement amid hopes that Omicron infections would be generally mild.

Market conditions were calmer on Monday with an easing in volatility. Global risk appetite secured a notable improvement amid hopes that Omicron infections would be generally mild.

Wall Street indices overcame initial hesitation to post significant gains. Global bourses also posted net gains despite reservations over the Chinese outlook.

The dollar overall was little changed with a mixed tone against major currencies. EUR/USD dipped below 1.1300, but resisted further selling pressure. Sterling was underpinned by firmer risk conditions and long-term expectations of higher interest rates.

Commodity currencies posted net gains amid the improvement in risk appetite. The Reserve Bank of Australia held rates at 0.0% with net Australian gains on RBA optimism that the Omicron outlook would be contained. The Swiss franc retreated as risk appetite improved. Oil prices secured a net advance as short-term demand fears eased to some extent.

German factory orders registered a sharp decline of 6.9% for October after a revised 1.8% increase the previous month and well below consensus forecasts of a 0.5% decline, increasing reservations surrounding the German industrial sector, although the immediate market impact was limited.

The Euro-zone Sentix investor confidence index retreated to 13.5 for December from 18.3 the previous month and below market expectations of 15.9.

The Euro held steady into the New York open, although the currency was unable to make significant headway amid a lack of underlying demand. Trading conditions were relatively subdued as is often the case on the Monday following a US jobs report.

The US employment trends index increased to 114.5 for November from 113.0 the previous month. Overall confidence in the labour market remained strong which reinforced expectations of a hawkish Fed stance. EUR/USD retreated to lows just below 1.1270 before stabilising with commodity currencies securing net gains.

ECB Council member Holzmann stated that it was very unlikely that inflation in the Euro-zone will drop below 2.0% in 2022. The dollar edged lower on Tuesday as risk appetite held firm and EUR/USD higher to around 1.1290 after stronger German industrial output data as markets continued to monitor Omicron developments.

There was choppy trading in US Treasuries in early US trading with yields overall edging higher. Wall Street futures lacked direction ahead of the US open, but gradually gained traction which helped underpin the dollar. Overall, USD/JPY secured a limited net advance to 113.30 after hitting resistance close to 113.50.

There will be no comments on monetary policy from Fed officials with the blackout period in operation ahead of next week’s policy meeting.

China’s trade data recorded a slight slowdown in export growth, but the figure was above expectations and there was strong import growth of 31.7%. The data overall boosted confidence in near-term demand, but there were expectations of further monetary easing by the central bank with a potential cut in benchmark rates. Overall risk appetite held firm in Asia with net optimism that symptoms of the Omicron variant would be mild, although there were still reservations over the Chinese outlook.

Demand for the yen remained subdued as regional equity markets posted net gains and USD/JPY strengthened to around 113.70 while EUR/JPY advanced to 128.35.

The UK construction PMI index strengthened to a 4-month high of 55.5 for November from 54.6 in October and slightly above market expectations of 54.9. There was a slight slowdown in the rate of growth in house building which was offset by a sharp increase in commercial activity. There were further important supply difficulties and upward pressure on costs continued, although there was a slight easing of pressures and prices increased at the slowest rate for four months.

Bank of England Deputy Governor Broadbent stated that inflation was likely to increase further in the short term and may comfortably exceed 5% by April. He added that the bank’s November estimates showed very clearly that inflation will be comfortably above target in the medium term if interest rates are not increased with upward pressure on wages. He added that he did not know how the emergence of the Omicron variant would influence his decision and he would not make a decision until the meeting.

Markets expect that the central bank will decide against a rate increase this month, but Broadbent’s comments suggest that there will be a hawkish statement with a clear indication that rates will increase in February as long as the Omicron impact is contained.

Sterling edged higher, although a firmer tone surrounding risk appetite had a more substantial impact in supporting the UK currency during the day.

GBP/USD moved above 1.3250 while EUR/GBP rallied to test the 1.1750 resistance level. There was a firm BRC retail sales report for November with Sterling gaining further net support from firm risk conditions as GBP/USD traded around 1.3280 with EUR/GBP just above 1.1750.

Economic Calendar

Expected Previous
07:00 GBP Halifax HPI (M/M)(NOV) 0.80% 1.00%
07:00 German Industrial Production (M/M)(OCT) 0.80% -0.50%
10:00 German ZEW Survey (Economic Sentiment)(M/M)(DEC) 20 31.7
10:00 German ZEW Survey (Current Situation) (DEC) 18 12.5
10:00 EUR Euro-Zone ZEW Survey (Economic Sentiment)(DEC) 25.9
10:00 Euro-Zone GDP (Q/Q) 2.20%
10:00 Euro-Zone GDP (Y/Y) 3.70%
13:30 Nonfarm Productivity (Q/Q) 2.40% -5.00%
13:30 USD Trade Balance(OCT) -80.50B -80.90B
13:30 CAD Trade Balance(OCT) 1.55B 1.86B
15:00 CAD Ivey PMI(M/M)(NOV) 59.3
19:00 USD Consumer Credit(OCT) 29.91B

*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.