Risk appetite has strengthened over the past 24 hours with hopes for progress in US-China trade talks and avoidance of another US government shutdown.

Risk appetite has strengthened over the past 24 hours with hopes for progress in US-China trade talks and avoidance of another US government shutdown.

The dollar lost ground as a technical correction was amplified by a reduction in defensive demand for the US currency while EUR/USD rallied on hopes for a global trade recovery.

Equity markets made net gains with Asian markets at 4-month highs which also curbed potential defensive support for the yen and Swiss franc.

Firmer risk conditions underpinned oil prices with evidence of OPEC cuts also a supportive factor while gold secured limited net gains.

Commodity currencies recovered ground with a slight easing of pessimism.

Bank of England Governor Carney reiterated that a modest tightening of monetary policy will likely be enough to achieve the inflation target assuming that the economic expansion continues. The overall assumption was for a Brexit deal while a ‘no-deal’ outcome would be an economic shock with Carney also warning over the international dimension of any failure. Sterling nudged higher, although reaction was limited given that comments were like those after last week’s policy meeting.

Prime Minister May called for parliament to hold its nerve over Brexit negotiations and confirmed that there will not be a meaningful vote this week. EU talks will continue in the short term with the next report due on February 26th. There was further intense political speculation within parliament and reports that there could be a long delay in leaving the EU if parliament fails to back the Withdrawal Agreement in March.

GBP/USD advanced to the 1.2900 area from lows below 1.2850 while GBP/EUR held around 1.1400. Stronger global risk conditions provided some Sterling support as GBP/USD traded just above 1.2900 on Wednesday while GBP/EUR rallied slightly ahead of the latest UK inflation data.

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