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Dollar's demise stops stocks rally in its tracks, but oil on the rise

US futures were left rudderless and European stocks fell, as positive sentiment fuelling the market late last week disappeared after the dollar slid to its lowest level in three months.

Futures contracts on both the S&P 500 and Nasdaq indexes fell slightly, which helped drive the Stoxx Europe 600 down in what is the third slide the index has seen in the last four trading sessions. However, it was not all bad news, with Japan leading a rally in Asia.

Renewed trade talks between US and China reduced demand for the dollar, while sterling lost ground to the euro as Theresa May struggles to find support for her Brexit deal ahead of a crucial parliamentary vote on her withdrawal agreement next week.

The euro rose against the dollar to $1.1437 levels, with the pound up just a touch to $1.2728. The greenback’s decline is reflected by the Bloomberg Dollar Spot index falling by 0.2% - its lowest level in three months.

The euro somehow managed to hold its value despite recent economic data coming out of Germany that showed that manufacturing demand had fallen more than expected in November.

Oil markets surge after dismal 2018

Oil has been granted a slight reprieve as Opec cuts that were agreed late last year are not coming into effect.

Both the US and international benchmark’s rose by more than 2% on Monday, with the West Texas Intermediate hitting $49.01 and Brent up to $58.34 as of 2:16pm GMT.

The rise in oil prices comes after the industry hit 15-month lows in December fuelled by fears of a global economic slowdown would lead to a reduction in demand.

Bull or bear?

Investors are yet to make take definitive stance on the direction of the market, after witnessing one of the biggest sell-offs in the lead up to Christmas in a decade.

The Federal Reserve attempted to settle investors nerves on Friday, with chairman Jerome Powell saying that the US central bank remains flexible when it comes to raising interest rates.

Powell also said that the Fed is happy to make changes to how it plans to shrink its massive portfolio of bonds that have a large knock-on effect on mortgages and other long-term loans.

But, despite the Fed’s best efforts to bring a degree of stability to the market, US lawmakers are still struggling to end the government shutdown as Republicans and Democrats are still unable to reach an agreement on the country’s budget.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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