Risk appetite improved on Friday with strong Chinese loans data and optimism over US-China trade talks offering support.

Risk appetite improved on Friday with strong Chinese loans data and optimism over US-China trade talks offering support with the positive mood continuing Monday.

US data was mixed with a dip in defensive demand and dovish Fed comments triggering a significant dollar dip from earlier 6-week highs.

The Euro was hampered by dovish ECB comments, but EUR/USD recovered from 3-month lows with strong retail sales data helping Sterling to make headway.

Global equity markets advanced on trade hopes with US indices at 3-month highs.

Oil prices also pushed to 3-month highs on demand hopes, supply disruptions and a weaker dollar.

Commodity currencies made net gains as risk conditions provided support.

Gold also moved to 3-month highs as the dollar faded.

Headline UK January retail sales volumes increased by 1.0% following a revised 0.7% decline previously. This was well above the consensus forecast to give an annual increase of 4.2% and provided an element of relief over underlying spending trends with GBP/USD back above 1.2800.

Sterling gained initial support from the data, although the overall impact was limited ahead of the New York open. The UK currency secured technical support ahead of the London fix and there was also an element of support from gains in oil prices and firmer risk appetite while there was some positive Brexit rhetoric from the Irish government. GBP/EUR dipped from highs at 1.1450 while GBP/USD advanced to near 1.2900 against the softer dollar.

Sterling opened higher in Asian trading on Monday following some reports that France was willing to make concessions on the Irish backstop, although President Macron denied this was the case. The Euro consolidated around 0.8760 on Monday while Sterling traded just above 1.2900 against the dollar as oil prices strengthened to fresh 3-month highs.

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