Sterling made net gains with some relief that the GDP data was not worse than expected.
US and European equities posted fresh record highs on Tuesday with hopes that the coronavirus was peaking in China, although there was a retreat from best levels.
The dollar hit a 4-month high before a slight correction as other majors recovered territory. EUR/USD dipped to just below 1.0900 on growth fears with only a marginal recovery.
Sterling made net gains with some relief that the GDP data was not worse than expected. The yen and Swiss franc were resilient despite equity gains with EUR/CHF at 34-month lows.
The Euro was unable to make headway in early Europe on Tuesday with a test of 1.0900 support for EUR/USD. ECB President Lagarde again called in fiscal policy to assist monetary policy and reiterated that the inflation rate remains some distance below our medium-term aim. The single currency continued to be undermined by expectations that it would be used as a global funding currency, especially given that volatility remains close to record lows. There were also further concerns that weakness in China due to the coronavirus would have an important negative impact on the Euro-zone.
The US NFIB small-business confidence index improved to 104.3 for January from 102.7 previously and above consensus forecasts. The JOLTS job-openings data declined to a 22-month low of 6.42mn for December from a revised 6.79mn the previous month with a slowdown in employment growth for the month which caused an element of unease.
St Louis Fed President Bullard stated that rate normalisation of previous years will pay dividends as the Fed has scope to react to a downturn. In testimony to the House of Representatives, Fed Chair Powell stated that the current policy stance is likely to remain appropriate as long as incoming information is consistent with the Fed’s outlook. He also stated that some uncertainties surrounding trade had diminished. Powell expected the inflation rate to move closer to 2% as the unusually low readings early in 2019 drop out of the calculation.
The rhetoric had little net impact with the dollar correcting slightly lower from 4-month highs as commodity currencies made limited headway. EUR/USD dipped to 4-month lows just below 1.0900 before a marginal recovery.
Chinese President Xi attempted a more positive tone on Tuesday with comments that China will win the battle against the coronavirus and will complete economic goals that have been set. Risk appetite held firm with equities making further significant headway during the day. Treasuries registered limited losses with the 10-year yield close to 1.60% which helped underpin dollar sentiment as the yield curve moved out of inversion. USD/JPY held firm, but was unable to break 110.00.
Ratings agency Standard & Poor’s estimated that the coronavirus would cut overall Chinese 2020 GDP growth by 0.7% with the rebound to start in the third quarter while annual global growth would be cut by 0.3%.According to Chinese sources, the number of new coronavirus cases was held to 2,015 on Tuesday, the lowest reading since January 30th which helped underpin risk appetite. Asian equity markets made net headway, but USD/JPY was again held below 110.00.
UK GDP increased 0.3% for December, reversing the November decline with fourth-quarter growth unchanged and in line with consensus forecasts. There was an upward revision to the previous quarter with a 1.1% annual increase which beat market expectations. Industrial production data remained weak with only a slight rebound from November losses to give 1.8% annual decline, but construction data beat expectations. The UK recorded a rare trade surplus for December due to erratic items. The data overall provided an element of relief with expectations of a stronger first quarter and no cut in interest rates.
Bank of England Governor Carney stated that any interest rate increases would be likely to be modest while Monetary Policy Committee member Haskel reiterated that he would prefer to move to cut rates now given the limited room for manoeuvre. Sterling held a slightly firmer tone with GBP/USD just above 1.2950 on Wednesday as global risk appetite held steady.
|10:00||Euro-Zone Industrial Production (M/M)(DEC, 2019)||-||0.20%|
|13:30||USD CPI (M/M)(JAN)||0.10%||0.20%|
|19:00||Monthly Budget Statement(JAN)||-||-13.3B|