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German consumer confidence dipped sharply to -6.8 for January from -1.8 in December and well below consensus forecasts of -2.7. There was choppy trading ahead of the New York open with the Euro unable to hold above the 1.1300 level against the US dollar.

There was a stronger tone surrounding risk appetite which curbed the potential for further Euro short covering and carry trades funded through the single currency.

The Euro was also undermined by concerns over the impact of very high energy prices with a further increase in gas prices during the day which will have a negative economic impact. German Chancellor Scholz stated that there is an urgent need for de-escalation on the Ukraine border with the Euro hampered by underling tensions.

ECB council member Kazimir stated that there is a risk that elevated inflation will stay for a longer time. He added that the bank would need to act if the inflation outlook changes for the next three years. Euro-zone consumer confidence retreated to -8.3 for December from -6.8 previously and the weakest reading since April 2021.

The Philadelphia Fed non-manufacturing index declined to 28.3 for December from 46.1 previously with robust readings for new orders and business activity. Employment indicators remained strong while inflation pressures eased slightly as markets continued to monitor supply-side issues.

The Euro gradually lost ground after the Wall Street open with a retreat to lows around 1.1260, although selling pressure remained limited. Narrow ranges prevailed on Wednesday with the Euro held close to 1.1270 as commodity currencies pared gains, but held a net advance from the previous day.


US Treasuries steadily lost ground after the New York open with the 10-year yield posting a notable increase to around 1.48% on the day and the highest level for over a week. Higher yields supported the dollar and the yen also lost defensive support as equity markets posted significant gains. In this environment, the dollar was able to strengthen to above the 114.00 level. Markets continued to monitor US fiscal policy developments with President Biden still optimistic that he could reach a deal with Democrat Senator Manchin to revive the Build Back Better plans.

There were further fluctuations in risk appetite on Wednesday with near-term fears over a surge in Omicron cases offset by longer-term hopes over vaccine developments with Astra Zeneca announcing that it will produce an updated vaccine which will target the Omicron variant.

The Chinese NDRC state planner announced further measures to support the economy, although Asian bourses were unable to make significant headway.

The dollar consolidated around 114.15 against the yen in early Europe on Wednesday with the Euro around 128.60 with risk conditions dominant.


The UK CBI retail sales index retreated sharply to 8 for December from 39 the previous month and below consensus forecasts of 24. Sales are expected to be poor for the time of the year in January with confidence inevitably undermined by concerns surrounding Omicron. Overall stock levels were comfortable, but there were also concerns that Omicron would cause further disruption to supply chains. The data maintained reservations surrounding the outlook for consumer spending, especially with devolved governments imposing fresh restrictions which will dampen activity in the leisure sector.

Irish Prime Minister Martin stated that talks between the UK and EU on the Northern Ireland protocol were on track for progress which could underpin sentiment.

Prime Minister Johnson shied away from further coronavirus restrictions in England ahead of the Christmas holiday, but there were strong expectations of further action soon after and Scotland announced a further tightening from December 27th.

Sterling gained notable support from the recovery in risk appetite with a move to above 1.3250 against the dollar while the Euro retreated to test the 0.8500 level.

There was no further boost to risk appetite on Wednesday with Sterling close to 1.3250 against the dollar while the Euro held just above 0.8500.


A firmer tone surrounding risk appetite curbed immediate demand for the Swiss franc to some extent during Tuesday. There were still important reservations surrounding European and global Omicron developments which sapped potential support.

The Euro secured a net advance to 1.0420 while the dollar posted a net advance to 0.9245. Markets continued to monitor potential National Bank action to curb franc gains, especially with trading volumes declining. There was little change on Wednesday with the dollar just below 0.9250.

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