EUR / USD
The final Euro-zone PMI manufacturing index was revised marginally higher to 54.8 from the flash reading of 54.7. The Euro-zone unemployment rate held at 8.3% for December which was in line with market expectations. The Euro was unable to gain support from the data and gradually lost ground, especially given the weak German retail sales data. There were further underlying concerns over the EU vaccine developments and the risk that the Euro area would lag behind other major areas.
The Euro dipped towards 1.2070 at the New York open as the US currency also secured wider support.
The US PMI manufacturing index was revised slightly to 59.2 from the flash reading of 59.1. The ISM manufacturing index declined to 58.7 for January from 60.5 the previous month and below consensus forecasts of 60.0. There were also slowdowns in the rate of growth for new orders and production, although both components remained historically strong. Employment increased at a slightly faster pace on the month while there was a stronger increase in prices on the month.
The Euro attempted to rally in early New York, but was unable to sustain the move and declined again into the European close as, importantly, the US currency secured wider support even with gains in equity markets. Overall, the dollar index strengthened to 7-week highs with the Euro retreating to near 1.2050.
Narrow ranges prevailed on Tuesday with the Euro securing only marginal relief as risk appetite held firm as the dollar resisted selling pressure.
US yields were unable to make headway on Monday, but the US currency maintained a firm tone. Equity markets posted strong gains which tended to keep both currencies on the defensive and the US currency settled close to 105.00 as narrow ranges prevailed.
The underlying demand for the yen, Swiss franc and Euro remained limited during the day which helped provide the US currency with net support.
President Biden met with 10 Republican Senators in an attempt to find a deal on the proposed economic support package. Although there was no deal, the talks were described as productive which helped underpin risk appetite amid hopes that a substantial package would be agreed relatively quickly.
China’s central bank boosted liquidity which helped underpin risk appetite and there was also some relief that China recorded a decline in coronavirus cases.
Narrow ranges prevailed with the dollar and yen both unable to secure sustained support with the US currency close to the 105.00 level against the Japanese currency.
The final UK manufacturing PMI index was revised higher to 54.1 from the flash reading of 52.9, but there were still important concerns surrounding the near-term outlook, especially with serious supply-chain difficulties and important reservations over export trends.
UK mortgage approvals declined slightly to 103,400 for December from a revised 105,300 previously and slightly below consensus forecasts, although it was still close to 13-year highs and the overall figure for 2020 was the highest since 2007. The Nationwide reported a decline in house prices for January.
UK consumers repaid consumer debt for the fourth successive month with a decline of £0.97bn for the month and the 7th decline in the last 10 months. Consumers remained in a risk-averse mode and continued to repay credit card balances, in part due to the inability to spend on holidays.
Sterling maintained a firm tone in European trading, although sentiment was hampered by a persistent inability to hold above 1.3700 against the dollar and retreated to the 1.3670 area as the dollar regained ground. The Euro also recovered slightly from fresh 8-month lows near 0.8800. Sterling held steady on Tuesday with optimism over the UK vaccination programme continuing to provide underlying support with the UK currency held below 1.3700 against the dollar.
The Swiss PMI manufacturing index strengthened to 59.4 for January from 58.0 previously and above market expectations of 57.0. Swiss sight deposits were marginally higher in the latest week and did not suggest significant National Bank intervention. National Bank Chair Jordan reiterated that currency intervention and negative interest rates remained essential and the American decision to call Switzerland a currency manipulator would have no effect.
The Swiss currency failed to make headway when risk appetite dipped at the end of last week and dipped significantly on Monday as equities rallied. The franc overall remained on the defensive during the day with the Euro posting a net advance to the 1.0820 area despite weakness elsewhere while the dollar advanced strongly to 2-month highs around 0.8970. The franc edged lower on Tuesday with the dollar around 0.8970.