EUR / USD
German retail sales increased 1.9% for November following a 2.6% gain the previous month with a 5.6% annual increase. Latest labour-market data was also stronger than expected with an unemployment decline of 37,000 for December following a revised 40,000 decline the previous month and compared with consensus forecasts of a 10,000 increase. Euro-zone M3 money supply growth increased to 11.0% in the year to November from 10.5% previously and above consensus forecasts of 10.6%, although private-sector loans growth edged lower to 3.1% from 3.2%.
There was no significant impact from on-going euro-zone coronavirus concerns as Germany extended lockdown measures with Euro sentiment holding firm.
The US ISM manufacturing index strengthened to 60.7 for December from 57.5 the previous month. This was above consensus forecasts of 56.7 and the strongest reading since March 2018. There was strong growth in new orders and production for the month and there was a small increase in employment for the month. Prices increased at a much faster pace on the month and the strongest reading since June 2018.
The Euro overall was initially held in narrow ranges with support just below the 1.2250 level against the US dollar. The US currency gradually lost ground as commodity currencies secured fresh gains and the Euro edged higher. The US dollar remained under pressure into the New York close with the euro testing the 1.2300 area. The US currency dipped to fresh 32-month lows in Asia on Wednesday before securing slight relief with the Euro at 23-month highs around 1.2330.
The dollar was unable to gain any support from the stronger than expected ISM manufacturing data and remained on the defensive during the European session with a retreat towards the 102.75 area. Wall Street equities made further headway during the day with indices recouping losses seen on Monday, although there was still an element of caution ahead of the Georgia Senate election run-offs with the dollar dipping below 102.80.
Exit polls indicated a very tight outcome and counting in Georgia continued during the night, although the Democrats appeared to be on course to win both seats which would give the party effective control of the Senate and generate expectations of a more aggressive fiscal stimulus. Congress will hold a formal joint session on Wednesday to certify Biden’s Presidential election victory on Wednesday with some Republicans expected to vote against. There are also some concerns over mass protests in Washington. There will be the potential for choppy trading later in the day amid US political developments.
The US 10-year bond yield moved above 1.00% to 10-month highs, although the dollar failed to gain significant benefit from higher yields.
China’s Caixin PMI services index declined to 56.3 for December from 57.8 previously and below consensus forecasts of 58.0. There were renewed concerns over the coronavirus situation in Japan with Tokyo reporting a record increase in new cases. Overall, the dollar declined to fresh 9-month lows at 102.60 before a slight recovery.
There were no significant UK data releases during the day with markets focussing on coronavirus developments and global risk conditions. Although there was unease over the impact of fresh lockdown restrictions in England and Scotland, the UK currency was resilient during the day with markets looking for a recovery later in the day.
The UK currency also managed to resist selling pressure despite renewed speculation that the Bank of England would move to introduce negative interest rates.
There was support just above 1.3550 against the US dollar with a move back above 1.3600 into the European close while the Euro edged lower to 0.9020.
There was some evidence of underlying institutional buying given that a no-deal trade situation had been avoided and a reversal of no-deal hedges. The firmer tone surrounding global risk appetite was also a significant factor underpinning the UK currency amid expectations of a global recovery in 2021. Sterling traded higher to 1.3650 on Wednesday amid further dollar weakness with the Euro around 0.9035 as tight ranges prevailed with solid risk conditions underpinning the UK currency.
Swiss consumer prices declined 0.1% for December with prices declining 0.8% over the year compared with expectations of a 0.7% decline. Negative inflation will maintain National Bank unease over deflationary pressure within the economy and reinforce resistance to Swiss currency gains.
The Euro settled around the 1.0800 level against the Swiss franc as narrow ranges prevailed. The dollar dipped to fresh 6-year low below 0.8780. The Swiss currency maintained a firm tone on Wednesday with the dollar continuing to trade below the 0.8800 level.