EUR / USD
German industrial production increased 3.2% for October following an upwardly-revised 2.3% gain previously. The Euro-zone Sentix investor confidence index improved to -2.7 for December from -10.0 previously and above consensus forecasts of -8.3 which demonstrated some resilience despite renewed lockdown measures. German Chancellor Merkel warned that additional measures would be needed after Christmas and the Euro initially lost ground as Brexit fears also had a negative impact.
The US employment index strengthened to 98.8 for November from 98.3 previously. There were, however, increased fears over the short-term US outlook, especially with a fresh surge in coronavirus cases. There was further speculation that expansive US fiscal and monetary policies would undermine the dollar, especially with stronger risk appetite and a recovery in the global economy. The US currency dipped sharply in New York which helped propel the Euro to highs near 1.2165.
There was caution ahead of Thursday’s ECB policy decision with very strong expectations of further policy easing and markets wary over the potential for stronger rhetoric against currency gains. The US dollar also managed to regain some ground and, in this environment, the Euro retreated to the 1.2120 area in choppy trading conditions. The dollar was able to regain ground on Tuesday in tentative conditions and the Euro edged lower to the 1.2110 area.
China’s currency reserves increased to a 4-year high of $3.18trn for November with a monthly increase of $50bn as the global travel shutdowns continued to limit Chinese tourism-related outflows. The firm yuan continued to limit underlying dollar support and the US currency failed to hold limited gains amid wider losses.
Markets continued to monitor US fiscal stimulus talks and, although there were positive noises, there were no definitive moves within Congress.
US futures edged lower after the New York close following reports that the US faced delays in securing further supplies of the Pfizer vaccine. Limits to vaccination would delay a potential US rebound with markets also alarmed by the increases in US coronavirus cases and fresh restrictions, especially in California. Government adviser Fauci also warned over a major threat to public health surrounding the Christmas period which hampered overall risk conditions and underpinned the yen.
Japan’s Tankan monthly manufacturing index recovered to -9 from -13 previously while the non-manufacturing index remained subdued. Narrow ranges prevailed on Tuesday with the dollar trading just above the 104.00 level while the Euro settled just above 126.0.
Halifax reported a 1.2% increase in house prices for November with the annual increase at 7.6% from 7.5% previously and the strongest rate since August 2016. There was no significant reaction as political noise continued to dominate Sterling.
Confidence in a the possibility of an EU/UK trade deal dipped sharply in early European trading amid a batch of downbeat assessments and rhetoric from officials. Markets were unsure whether this was political stage management or a true reflection of developments, but the path of least resistance was Sterling selling, especially given previous optimism over talks. The UK currency slumped to lows at 1.3225 against the dollar with the Euro strengthening sharply to 0.9140.
The UK did offer to withdraw controversial Internal Market Clauses if there was a Brexit deal and Sterling gradually pared losses during the day.
After another phone conversation, UK Prime Minister Johnson and EU Commission President von der Leyen agreed that the basis for a deal was not there. Johnson will, however, travel to Brussels this week to meet von-der Leyen in an attempt to broker a political deal. Rhetoric was downbeat, but markets assumed on political grounds that Johnson would have to return from Brussels with some form of agreement. Rhetoric will continue to be monitored very closely in the short term.
Barclaycard recorded a 1.9% annual decline in consumer spending for November with a surge in online grocery shopping offset by a slide in department store sales. Sterling lost ground in early Europe on Tuesday with the downbeat political tone sapping support to trade below 1.3350 against the dollar with the Euro at 0.9080.
Swiss sight deposits declined to CHF705.3bn from CHF706.5bn the previous week. This was the third successive weekly decline and will reinforce speculation that the National Bank has shifted its stance slightly and is less concerned over franc appreciation despite the Swiss currency posting 5-year highs against the dollar.
The Swiss franc drew support from sharp gains in gold prices during the day. The Euro retreated to lows around 1.0780 before settling around 1.0800 while the dollar dipped to fresh 5-year lows below 0.9900 before a slight recovery. The Swiss franc continued to resist losses on Tuesday amid less buoyant risk conditions.