Risk sentiment turned in the European session, leading to a recovery in equity markets and a bounce in risk assets. Oil prices bounced back above the key $30 a barrel level, mainly due to hopes that a deal may be edging closer for OPEC and non-OPEC producers to cut the output of oil. This optimism came about after Iraqi Oil Minister Adel Abdel Mahdi said he saw “some flexibility” for a deal, suggesting that Saudi Arabia and Russia could be more flexible on production cuts.
The oil-linked Canadian dollar reacted positively to the comments and followed crude oil prices higher. This meant the USD/CAD pair fell back below $1.42. The Australian dollar also outperformed the greenback and rose above the key $0.70 level.
Another outperformer was the British pound which rallied 0.8% from the session’s low, rising to the $1.43 handle after dipping earlier to $1.4172.
As investors moved out of safe havens, the euro slipped against the dollar to find support at $1.0818 while the yen weakened as well to bump the USD/JPY back above 118 yen.
Safe haven gold retreated from a 12-week high of $1117 as risk appetite picked up. The precious metal stayed above the key $1100 level though.
Data on the US economic calendar consisted of house prices, consumer confidence and PMI data. The Case Shiller 20-City house price index rose 5.8% year over year in November. This beat forecasts for a 5.6% rise and was also above October’s 5.5% rise.
Meanwhile, the Conference Board’s measure of US consumer confidence for January rose to 98.1 versus 96.5 expected. The prior month was revised down to 96.3 from 96.5. This helped overshadow the disappointing PMI data that were released earlier. The Markit flash services PMI for January came in a bit below expectations at 53.7. Economists had expected a reading of 54, to show a dip from December’s 54.3 reading.
Focus now turns to the FOMC meeting which begins today and ends on Wednesday. While the Fed is not expected to hike interest rates at this meeting, investors will look for any hints on future rate increases.
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