FX round-up: Sterling sees profit-taking as investors wait for Trump speech, Commons vote

Sterling was on the back foot on Tuesday, as traders took profits following recent weakness in the US dollar, ahead of an eagerly awaited speech from the US President and a potentially key vote in Parliament on the Prime Minister's Brexit plans.

Also helping to put a bid into the Greenback were late afternoon reports that after two days of talks the US and China were not yet ready to agree on a trade deal; which had led to the scheduling of an additional day of talks for the current round of negotiations.

UK economic data was arguably the bright spot during the session, after mortgage lender Halifax reported a 2.2% spike in house prices for December versus the prior month - the largest increase since March 2016.

Nevertheless, the outlook for house prices in 2019 would hinge on whether Britain was able to exit the European Union with a deal or not.

Under the former scenario, Dr.Howard Archer at IHS Markit was predicting that prices would rise by 2%, but if not then his expectation was that they would fall by 5%.

"Caution over making major purchases will likely be magnified in the near term by current heightened uncertainties over Brexit," he explained.

"House buyers will also likely be concerned about further interest rate hikes over the coming months – even if they are likely to be gradual and limited.

"It should also be kept in mind that the share of outstanding mortgages on variable interest rates has fallen to a record low around 35%, which is half the peak level of 70% in 2001."

Stateside meanwhile, investors were waiting on a speech by the US President outlining his plans for a border wall with Mexico, which by defect might have implications regarding the ongoing shutdown of most parts of the federal government.

Ahead of that, the US National Federation of Independent Businesses's small business confidence gauge slipped by just 0.4 points from the month before to reach 104.4 (consensus: 103.5).

However, Ian Shepherdson at Pantheon Macroeconomics believed a further decline in business optimism was likely in January.

In particular, Shepherdson noted the four point decline seen in the sub-index for companies' capital expenditure plans, which he described as a "big blow", although it remained to be seen if the drop would "stick" or even drop further.

Meanwhile, in the euro area, Germany's Ministry of Finance reported a 1.9% month-on-month decline in the country's industrial output and a 4.7% drop versus a year ago.

Following Tuesday's data, Claus Vistesen, chief Eurozone economist at Pantheon Macroeconomics, said: "We think production rebounded in December, but these data have crushed all hope of a Q4 rebound in manufacturing following the weak Q3, which was driven mainly by falling exports and output of cars ahead of the new EU emissions regulation."