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POUND STERLING (GBP)
UK PMI data signaled stronger November manufacturing output, although conditions were still described as lacklustre and there was no Sterling support. After a brief respite, Brexit headlines returned to dominance with the government embroiled in a row over publishing legal advice. Markets were still convinced that the government would be defeated in the December 11th House of Commons vote and Sterling lost ground. GBP/USD hit lows near 1.2700 with only a limited recovery despite wider US losses while GBP/EUR dipped below 1.1200 with the Brexit parliamentary debate set to begin.
Headline Euro-zone PMI manufacturing data was revised slightly higher, although the Euro was unable to shake-off concerns surrounding weak growth, especially with Italian data suggesting the economy could contract for the fourth quarter. After peaking around 1.1380, EUR/USD gradually drifted lower as Italian budget uncertainty continued with contradictory rhetoric, although it held above Friday’s lows. EUR/USD rallied again on Tuesday as the US currency lost ground with markets also expecting seasonal Euro demand and the single currency held a firm tone on the crosses.
After opening sharply lower as defensive demand faded on US-China trade hopes, the dollar secured a limited recovery. ISM manufacturing data continued to indicate firm US growth and solid employment gains, although inflation pressures eased. Gains on Wall Street initially supported the dollar, although conviction was lacking, especially given expectations of a slightly less aggressive Fed policy. The fresh slide in benchmark 10-year bond yields to 10-week lows, lower inflation expectations and sharp Chinese yuan gains undermined the US dollar on Tuesday with USD/JPY dipping to near 113.00.
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