Nationwide reported an increase in house prices of 1.0% for November with a year-on-year increase of 10.4% from 10.0% previously as asset-price inflation continued. During the holiday period, Sterling was supported by a robust risk appetite as equity markets posted solid gains and the FTSE 100 index advanced to a fresh 22-month high. There was also evidence of a covering of short positions as the dollar lost ground. CFTC data recorded an increase in short Sterling positions to near 58,000 in the latest week from below 51,000 the previous week and the largest short position since October 2019. The aggressive short position will maintain the risk of short covering if there is a shift in sentiment and UK currency gains. Markets inevitably remained uneasy over the UK coronavirus trends given the on-going surge in cases. Sterling was unable to hold higher as the dollar posted gains, but the Euro registered a fresh retreat.
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The Euro found support at lows against the Dollar ahead of the New-Year holiday with a strong advance on the final day of the year. The dollar was undermined by robust risk conditions and US selling on seasonal grounds which helped trigger a covering of Euro shorts and European gas prices declined sharply. The Euro was resilient despite further concerns surrounding near-term coronavirus trends but was subjected to renewed selling after the New Year holiday with a slide. The Euro was able to resist further aggressive selling on Tuesday with markets focussing on inflation and employment trends as choppy trading conditions continued.
Key Data
7.00 German Retail Sales (MoM) (Nov) Act. -2.9% Exp. -2.9% Prev. -2.9%
The US core PCE index increased 0.5% for November with the annual increase strengthening to 4.7% from 4.2%. This was above consensus forecasts of 4.5% and the highest rate since 1983, maintaining pressure on the Federal Reserve to tighten policy. Initial US jobless claims declined to 198,000 in the latest week from 205,000 while continuing claims declined sharply to 1.71mn from 1.86mn and well below consensus forecasts. Business surveys remained strong with the Richmond Fed manufacturing index strengthening to 16 for December from 11 previously while the Chicago PMI index advanced to 63.1 from 61.8 the previous month. The data maintained confidence in the US labour market and business conditions. Markets continued to monitor US and global coronavirus developments, although position adjustment was a key element late in 2021 with choppy trading conditions.
Key Data
15.00 ISM Manufacturing PMI (Dec) Exp. 60.2 Prev. 61.1