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In its monthly report, the Bundesbank warned that the German economy could stagnate or even contract during the fourth quarter as the fresh restrictions in the services sector undermines activity. It did not expect the impact to be as severe as during the first wave and progress on a vaccine offered hope that conditions would ease.

Overall risk appetite strengthened during the European session following another bout of optimism over coronavirus developments as Moderna was the second company to announce very encouraging trial data. Equity markets made fresh gains, although the dollar was broadly resilient against European currencies. The Euro was also hampered by the inability of EU envoys to reach unanimity on the recovery fund, dampening hopes for a strong 2021 recovery.

The New York Empire manufacturing index weakened to 6.3 for November from 10.5 previously and below consensus forecasts of 13.0. There was also a significant slowdown in new orders growth while unfilled orders remained in contraction territory. There was a slightly faster rate of employment growth with a solid increase in prices for the month. Companies were slightly more optimistic over the longer-term outlook. The latest retail sales data is due on Tuesday.

Overall, the Euro was unable to hold above the 1.1850 level amid underlying caution over the Euro-zone outlook.

CFTC data recorded a further small decline in long Euro positions to 135,000 contracts from 140,000 and the lowest reading since late July. There is still scope for a net reduction in long positions if sentiment shifts. The dollar, however, remained on the defensive on Tuesday with the Euro just above 1.1850 at the European open.


Risk appetite strengthened following the Moderna trial data with increased optimism over the 2021 global growth outlook. Defensive demand for the Japanese yen faded after the announcement and the US dollar briefly pushed above the 105.00 level. The US gains were, however, short lived and it retreated towards 104.50 at the European close as underlying US sentiment remained weak and the yen was resilient as US yields failed to increase.

Markets were monitoring the congressional debate on whether to approve Shelton to the Federal Reserve Board. Three Republican Senators have so far opposed the nomination which puts the overall nomination at considerable risk of being defeated.

Despite positive vaccine news, there was further unease over near-term coronavirus developments as cases continued to increase and social restrictions increased. There were further moves at the state level to tighten restrictions on activity with the Iowa Governor, for example, declaring a disaster and further restrictions in California. The Chinese yuan held firm on Tuesday, although there important concerns over the potential for Trump action against China before he leaves office. Any increase in tensions could undermine risk appetite sharply. The dollar was trapped around the 104.50 level as the yen held a firm tone. 


Sterling made further headway in early Europe on Monday, but failed to hold the gains as caution gradually increased. There was a series of more cautious comments from EU officials over the state of Brexit talks with warnings that it was already very late and it may already be too late to reach agreement. Prime Minister Johnson also chose to focus on the UK economy being well placed to manage if there was no deal.  

The UK currency was unable to secure any direct benefit from the Moderna vaccine report, but the stronger risk tone did limit any potential selling pressure.

Sterling settled just below 1.3200 against the dollar with the Euro near 0.8975. CFTC data recorded an increase in short Sterling contracts to 18,000 contracts from 11,000 previously, the largest short position since the end of July. The data suggests scope for significant hedge-fund buying if a trade deal is approved.

Media reports indicated that UK Chief Negotiator Frost had commented that a trade deal could be reached early next week, although there were important caveats and reservations over the quality of any deal. The UK currency edged above 1.3200 against the dollar with the Euro around 0.8970 with markets braced for media briefings. 


Swiss sight deposits increased slightly to CHF707.9bn for the latest week from CHF707.6bn the previous week which suggests that there was only very limited National Bank intervention to curb franc strength during the week.

The franc weakened in response to the Moderna vaccine trial news, although it was again resilient as the Euro struggled to hold gains. The single currency again struggled to hold above the 1.0800 level, although it eventually settled around 1.0815 while the dollar was little changed just below the 0.9125 area.



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