Sterling gradually lost ground during Tuesday as political uncertainty sapped support with tensions inevitably increasing ahead of the Brexit parliamentary debate.

Risk appetite registered a further net improvement on hopes that the US and China would be able to reach a deal on trade and on-going expectations that the Fed would be less hawkish this year.

Equity markets made further net gains with reduced demand for defensive assets also a feature.

Positive risk appetite helped support oil prices with WTI breaking above the $50 p/b level.

Commodity currencies gained ground with a notable Canadian currency advance and there were net US dollar losses on Wednesday as domestic political tensions continued.

The Euro-zone economic sentiment index declined to 107.3 for December from 109.5 previously and was below consensus forecasts with a downturn in industrial sentiment, although consumer confidence held steady. The data reinforced recent evidence with solid retail spending, but increased reservations surrounding the industrial sector.

The Euro and Sterling were hampered by growth concerns and political stresses respectively.

After a firm opening, Sterling gradually lost ground during Tuesday as political uncertainty sapped support with tensions inevitably increasing ahead of the Brexit parliamentary debate. There was slightly greater caution surrounding the potential for EU assurances on the Northern Irish back stop and markets continued to see very little prospect that Prime Minister May could win the January 15 meaningful vote.

Tensions increased further after a government House of Commons defeat which blocked the government’s scope for budget measures in the event of a ‘no-deal’ EU exit.

GBP/EUR retreated from the 1.1170 resistance area while GBP/USD dipped to lows near 1.2700. Further gains in oil prices and increased confidence in the global outlook provided some underlying Sterling relief and the Euro continued to hit resistance close to 0.9000 while GBP/USD secured a limited recovery against the dollar on international factors.

Economic Calendar