EUR / USD
According to flash data for November, the German manufacturing PMI index declined slightly to 57.9 from 58.2 previously and above consensus forecasts of 56.5. The services sector data declined to 46.2 from 49.5 and close to market expectations. The Euro-zone manufacturing index declined slightly to 53.6 from 54.8 previously while the services-sector PMI declined to 41.3 from 46.9 and the lowest reading for 6 months. The data overall provided limited relief given that the services data was not as bad as expected. The Euro strengthened to highs just above 1.1900, but again failed to break above this level which triggered a correction.
The US PMI manufacturing index strengthened to 56.7 for November from 53.4 the previous month and well above consensus forecasts of 53.0. The services-sector index also posted a gain to 57.7 from 56.9 and above market expectations of 55.0. The data offered important reassurance over the near-term US outlook which helped underpin the US currency, especially with reduced expectations of further near-term Federal Reserve easing.
The US currency index also rebounded strongly from a key support area which provided an important boost to the dollar against major currencies. The Euro was also hampered by a slide in precious metals and weakened sharply to lows at 1.1800 before a fresh rally as defensive dollar demand remained lower.
ECB council member Rehn stated that the bank must keep current financing conditions for as long as needed with the bond purchases and cheap loans the key instruments. The comments continued to dampen expectations that the central bank would move to cut interest rates. The dollar edged lower against European currencies and there were fresh gains for commodity currencies with the Euro around 1.1850 as overall risk appetite held strong into the European open.
Markets continued to fret over near-term policies pursued by the White House with reports that the US wanting to pursue a tougher stance on China, although the market impact was limited given the forthcoming change in Administration. Equities remained in positive territory and the US dollar was able to benefit from wider gains with an advance to near 104.50 against the Japanese currency following the stronger than expected US data as US yields moved higher.
There was further speculation that former Fed President Yellen would be appointed as Treasury Secretary under the Biden administration which triggered expectations of a strong fiscal policy response next year and close co-ordination with the Fed. After the New York close the General Services Administration stated that it was officially ready to commence the transition process. Although President Trump refused to concede, he did accept that that the US needed to move on and the news also provided a limited boost to risk appetite. Defensive demand for the yen was weaker with the dollar just below 104.50 in early Europe as equities held firm.
According to flash PMI data, the UK PMI manufacturing index strengthened to 55.2 from 53.3 the previous month, although the data was boosted by a renewed bout of stock building before the end of the transition period. The services sector declined to 45.8 from 52.3 previously, but also above expectations. Unemployment continued to decline sharply, although overall business confidence strengthened to the highest level for over five years amid optimism over vaccine developments.
Bank of England chief economist Haldane noted optimism over a recovery in the economy for 2021, although he also warned that there would be permanent scarring for the economy and also noted that November data had registered a downturn. Vaccine hopes will limit the potential for further central bank policy easing.
There were continued expectations that there would be a UK/EU Brexit trade deal within the next few days, although with no sign of an imminent breakthrough in talks.
The UK currency strengthened to 11-week highs just below 1.3400, but then declined sharply to below 1.3300 as the US dollar rebounded aggressively. The Euro also recovered from 12-day lows around 0.8870. Sterling held steady on Tuesday with gains in commodity currencies providing net support and there was also some relief that more businesses will be allowed to re-open once the England lockdown eases. Brexit developments will continue to be watched very closely with Sterling at 1.3340.
Swiss National Bank sight deposits declined to CHF707.3bn from CHF707.9bn the previous week which suggested that there was no bank intervention during the week.
The Swiss franc was resilient despite a sharp decline in precious metals during the day and slid tone in risk conditions.
The Euro was again unable to hold above the 1.0800 level as narrow ranges prevailed while the dollar rebounded from 0.9075 lows to near 0.9150. The Swiss currency was again resilient on Tuesday with only marginal losses despite a firm tone surrounding risk appetite and the dollar close to 0.9120.