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German labour-market data beat expectations for the second successive month with a 39,000 unemployment decline for November and compared with consensus forecasts of a small increase. There was a small upward revision to the Euro-zone manufacturing PMI index to 53.8 from the flash reading of 53.6.
The Euro-zone CPI inflation rate was held at -0.3% for November and slightly weaker than market expectations of -0.2%. The core rate was unchanged at 0.2% and in line with consensus forecasts. The data maintained expectations of further ECB monetary easing at next week’s policy meeting.
The Euro held steady ahead of the New York open with net gains on the crosses and there was a sharp increase in Euro-zone bond yields on the day.
The US ISM manufacturing index retreated to 57.5 for November from 59.3 previously and slightly below consensus forecasts. The growth in new orders and production also slowed, the figures were still robust while prices continued to increase sharply. There was, however, a fresh contraction in employment after a gain last month.
In testimony to Congress, Fed Chair Powell stated that the central bank wanted to do as much as it can to get back to a strong economy. It would be premature to withdraw support for the economy and the Fed would not pre-emptively raise rates until we see actual inflation.
The Euro pushed sharply higher towards the European close with reports of positive Brexit talks helping to trigger a break above the 1.2000 level and also generated stop-loss buying. The Euro continued to gain momentum later in the day with a peak around 1.2070, the highest level since May 2018. The dollar remained on the defensive on Wednesday to trade at 30-month lows amid global reflation expectations with the Euro holding around 1.2075 after strong German retail salaes data.


Equities secured strong gains on Tuesday with fresh buying at the beginning of the new month amid optimism over sustained monetary policy support.
There was fresh optimism over a potential US fiscal stimulus with reports that a bipartisan group of Senators was proposing a $908bn support package. There were still important reservations whether there would be progress in the short term and the two early-January Senate run-offs in Georgia will be crucial for the prospects of a substantial stimulus package next year. US yields moved significantly higher on the day which helped undermine potential demand for the Japanese yen. The dollar strengthened to highs just above 104.50 while the yen retreated sharply on the main crosses.
Bank of Japan deputy Governor Amamiya stated that the bank will not hesitate to add easing if necessary with risks still on the downside. The yen continued to drift lower despite a slight retreat in US futures and the dollar edged higher to just below 104.50 with the euro at 10-week highs.


UK housing data remained strong with Nationwide reporting an increase in house prices of 6.5% in the year to November, the strongest reading since January 2015. The final reading for the UK manufacturing index was revised to 55.6 from the flash reading of 55.2 and 53.7 in October.
Sterling was unable to make any headway ahead of the New York open and lost ground amid a cautious tone surrounding UK/EU trade talks. The Euro tested resistance just above 0.9000, although the UK currency did find support above 1.3300 against the dollar. The UK currency struggled to gain support from the robust trend in risk appetite and hopes for a strong global economic recovery next year.
Just ahead of the European close there were reports that the trade talks had entered the “tunnel” phase of very intensive talks which usually means that talks are in the final phase. There was no official confirmation and there is usually a media blackout during a tunnel. Sterling jumped higher, but failed to hold the best levels amid doubts whether the talks were in a tunnel. There were also still concerns that talks could fail. Sterling held just above 1.3400 against the dollar on Wednesday with the Euro close to 0.9000 amid reports that Barnier will brief EU Ambassadors early today while the UK approved use of the Pfizer coronanvirus vaccine from next week.


The Swiss PMI manufacturing index strengthened to 55.2 for November from 52.3 previously. The Euro strengthened to highs around 1.0865 in US trading as the Euro secured strong overall gains while the dollar dipped to test the key 0.9000 level.
The Swiss franc was again broadly resilient despite robust risk conditions and out-performed relative to the Japanese yen. The Euro was able to edge higher on Wednesday as it advanced to near November highs while the dollar continued to test support just below the 0.9000 level.



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