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US dollar buoyed by safe-haven demand amid escalating tensions in the Middle East

currency-newsUS dollar buoyed by safe-haven demand amid escalating tensions in the Middle East

The US dollar was propelled higher on Friday, with investors flocking to the safe-haven currency in response to rising tensions in the Middle East.

Turning back to the pound this morning, Sterling appears to be mostly directionless at the start of the week, with GBP/EUR muted at €1.1714, GBP/USD flat at $1.3081, and GBP/CAD subdued at C$1.6980, while GBP/AUD and GBP/NZD hold steady at AU$1.8827 and NZ$1.9635 respectively.

In focus this morning we have the publication of the UK’s latest services PMI. Will a lacklustre result exert pressure on GBP exchange rates?

What’s been happening?

The US dollar accelerated at the end of last week’s session as a US air strike against a top Iranian general stoked tensions in the Middle East and sent investors scrambling for safe-haven assets.

However, the US dollar was forced to relinquish some of its gains later in the session on the back of a disappointing ISM manufacturing PMI, which suggested growth in the US factory sector slumped to a new decade low in December. 

The pound continued to trend lower on Friday, with GBP investors growing increasingly concerned about the prospect of the UK crashing out of the EU at the end of 2020.

Also exerting pressure on Sterling was the UK’s latest construction PMI, amid a sharper-than-expected contraction in the construction sector in December.

Meanwhile, the euro firmed at the end of last week’s session with the publication of Germany’s consumer price index as it revealed German inflation bounced back to a five-month high in December.

What’s coming up?

Looking ahead, the pound may face some headwinds at the start of this week’s session with the final publication of the UK’s services PMI.

This is expected to confirm that December saw the UK’s all-important service sector suffer its worst contraction in nine months, fuelling concerns that the UK economy stalled at the end of 2019.

Meanwhile, the euro has found some early support this week on the back of some upbeat German retail sales figures printed at the start of today‘s session.

The single currency may be able to build on these gains later in the morning if the Eurozone’s own services PMI is revised higher in December, as the manufacturing PMI was last week. 

Finally, in the absence of any notable US data today, movement in the US dollar may continue to be driven by market risk appetite, potentially propelling the ‘greenback’ higher if tensions in the Middle East continue to escalate.

Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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