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    European Session – Sterling buoyed by UK-EU proposal to prevent Brexit

    The markets saw another rise in risk aversion today, helping the euro regain the $1.09 handle against the dollar.

    Data out of the Eurozone consisted of unemployment data which showed the jobless rate fell to a five-year low at 10.4% in December 2015, down from 10.5% in November 2015. Compared to a year ago, the rate was also down from the 11.4% rate in December 2014. While this is good news, the data may not be enough to sway the European Central Bank away from considering increasing its monetary stimulus at its March policy meeting.

    Sterling dropped sharply after the release of UK Construction PMI data which showed the index declined in January to 55.0 from 57.8 in December. This was the weakest reading in nine months and below the forecast of 57.5 (Reuters poll).

    The pound managed to rebound from a low of 1.4325 and rallied to a three-week high of 1.4445 on news that a draft proposal was outlined for a UK/EU deal that would reduce the risk of a “Brexit”. Reports suggested that British Prime Minister David Cameron’s main demands were covered in the proposal and this would help Britain not want to leave the EU. One of the major demands was for not having to integrate further politically with the EU.

    In other currencies, the dollar edged lower against the yen to 120.30 as risk aversion buoyed the safe haven Japanese currency. The US calendar was light today, with the release of the New York ISM index for January coming at 54.6 versus a prior 62.00. The data had little impact on the dollar.

    Oil extended losses to a four-day low to below the key $30 a barrel mark as concerns of oversupply and slowing global growth continue to weigh on the commodity. The upcoming crude reserves reports from API are expected to show a rise in inventory levels, adding to the oil glut. Also weighing on oil prices are fading hopes over a deal for production cuts by OPEC and Russia.

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