International Tensions Causing Volatility for Exchange Rates

Will the Euro Continue to Strengthen Against Sterling?

2020 hasn’t been overly kind to the pound, as it started the New Year on the backfoot. Over the course of Friday, the euro to dollar rate rose, possibly because of benefits from the weakness of the emerging markets. The pound to euro rate finished the week off .2% higher than previously, and now we’re all wondering whether sterling could break through that 1.2080 high seen earlier. At time of writing, the pound is at 1.31484 against the dollar and 1.17554 against the euro.

International Tensions Rise

The pound has softened against the dollar and the euro, and we saw it head into the weekend with US President Donald Trump admitting that the US is responsible for the killing of one of the most powerful Iranians in the world- senior military commander Qassem Soleimani. The killing happened in Iraq, resulting in an increase in tension between the two countries which will now most probably have an impact on currencies.

This isn’t the first time the US has claimed responsibility for attacks against Iran. The US said that they were responsible for a previous missile attack on a militant group in Iraq which was backed by Iran.

Investors will not appreciate this move from President Donald Trump. Assets could remain on the backfoot as we enter into the new week, with fewer risks being taken in the markets than thought. Safe-havens could continue to outperform riskier, emerging markets. The dollar would benefit from this, as well as other currencies such as the yen, Swiss Franc, and maybe even the euro in the short term.

UK Service Sector Numbers Due

The IHS Markit PMI on services for December is due to be released later today, and it’s thought that the “flash” that was published will be revised from 49.0 to 49.1. It will be interesting to compare, as both the construction and manufacturing surveys have surprisingly shown a downside, despite business confidence being decent for such uncertain times.

We also should see a response to the Iranian killing from Prime Minister Boris Johnson, who returns from holiday today. Moreover, on Tuesday the Withdrawal Agreement will be back in Parliament to be debated at its “committee stage”, with the Lords due to debate the bill on Thursday. The bill is expected to become law, and given the vast Conservative majority, it’s doubtful that the markets will move too much once the bill is approved.

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