1. FX Outlook
  2. Daily FX Report


The German IFO business confidence index strengthened to 88.6 for December from a revised 86.4 previously and above consensus forecasts of 87.4. The current conditions component strengthened to 94.4 from 93.2 with an improvement in the expectations index to 83.2 from 80.2

The IFO stated that the German economy is entering the holiday season with a sense of hope and that nearly every industry has seen improved business conditions while supply-side constraints have eased further. The IFO added that there is a reduced risk of recession, although the institute stated that it would not go as far as calling it a trend reversal. The data helped underpin confidence in the overall outlook.

ECB council member Kazimir stated that strong action will be necessary in the first half of 2023. He added that rates will not only have to go into restrictive territory, but stay there for much longer. The comments maintained the hawkish rhetoric since last week’s policy meeting.

The Euro held a firm tone after the IFO data, but was unable to move above highs seen on Friday with a peak around 1.0660. The Euro gradually lost ground into the New York open with a retreat towards the 1.0600 level as risk appetite deteriorated.

There was evidence that liquidity was thinning towards the European close with the Euro briefly dipping to 1.0580 before a quick recovery to 1.0600. As equities remained on the defensive, the Euro settled just above the 1.0600 level. Weaker risk appetite sapped Euro support on Tuesday as it traded fractionally below 1.0600.


Treasuries were little changed in early Europe on Monday, but there was significant selling pressure towards the New York open with the 10-year yield increasing to near 3.60%. The NAHB housing index dipped to 31 from 33 the previous month which was below expectations of 34 and only just above the lows recorded in an immediate response to the coronavirus crisis. The data maintained reservations surrounding the economic outlook. Equities continued to move lower, but there was notable dollar buying as yields moved higher with gains to near 137.20 near the European close before a retreat to just below the 137.00 level.

The Bank of Japan held interest rates at -0.1% which was in line with expectations and the target for the 10-year yield was also held at 0.0%. The central bank, however, adjusted the trading range for the 10-year bond with ceiling for yields increased to 0.50% from 0.25%. Following the limited policy shift, there was very heavy selling of bonds with the central bank intervening aggressively to combat even higher yields. Risk appetite dipped sharply amid unease over central bank tightening. The yen posted very strong gains with the dollar slumping to 4-month lows at 132.70 before a tentative recovery to 133.20. The Japanese currency also surged on the main crosses with the Euro at 2-month lows below 140.50 before a slight recovery. Overall trading conditions are likely to remain volatile in the short term.


Sterling posted net gains after Monday’s European open with highs around 1.2240 against the dollar. The Euro found some support below the 0.8700 level which limited the scope for a wider advance for the UK currency. The CBI industrial orders index edged lower to -6 from -5, but slightly better than consensus forecasts of -10. The CBI, however, stated that manufacturing output volumes declined at the fastest rate for over two years while inflation pressure remained well above the long-run average and prices were slightly stronger than the previous survey.

Risk appetite remained less confident later in the day which tended to drag Sterling lower amid further reservations surrounding the global outlook. Sterling briefly dipped to lows at 1.2120 against the dollar in choppy trading around the London fix before recovering ground.

Weaker Wall Street equities maintained a defensive tone for the UK currency into the US close with a retreat to below 1.2150 against the dollar. Risk appetite dipped again in Asia following the Bank of Japan policy decision with Sterling dipping to below 1.2100 against the dollar before a rally to 1.2150 with the Euro around 0.8720


The Swiss franc resisted further selling interest on Monday with the Euro hitting selling above the 0.9900 level while the dollar dipped to lows at 0.9285 before a recovery to above 0.9300. The Swiss franc gained support from a weaker tone surrounding risk appetite as equities moved lower.

Total Swiss sight deposits increased slightly to CHF542.9bn in the latest week from CHF542.3bn the previous week and the first net increase for three months.

The franc edged higher on Tuesday as equity markets posted fresh losses with the dollar unable to make any headway.

Technical Levels 

Tables 1 (83)



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