Escalating US-Iran fighting pushed investors into the safe-haven US Dollar on Thursday, sending the Pound to Dollar rate lower and driving a sharp sell-off across Asian markets. Sterling gave back part of the previous session’s political rally as risk appetite faded.
Escalating conflict in the Middle East drove investors into the safe-haven US Dollar on Thursday, pulling the Pound to Dollar rate down to $1.3499, around 0.3% lower on the day. Sentiment had been relatively resilient since the US and Iran renewed hostilities, but with the fighting intensifying, risk appetite began to fade.
Strikes widen and markets flinch
The US expanded its attacks into northern Iran, with strikes also hitting around Tehran. President Donald Trump threatened to target Iranian infrastructure such as bridges, while Tehran vowed to retaliate against infrastructure in US-allied Gulf states.
As the conflict escalated, the safe-haven Dollar firmed on renewed demand. The move rippled across Asia: Japan’s Nikkei tumbled 5.3%, China’s Shanghai Composite dropped 3.0% and Hong Kong’s Hang Seng lost 2.4%. Iranian state media reported US strikes on an airport, a railway station in Bandar Abbas and two bridges near the Strait of Hormuz, and Iran said it responded by targeting US military infrastructure in Kuwait.
Sterling hands back its political gains
The Pound edged lower as it gave back part of the gains it had posted the previous session. Sterling had surged on Wednesday after reports suggested Shabana Mahmood had overtaken Ed Miliband as the leading contender to become Chancellor under incoming Prime Minister Andy Burnham, with markets viewing Mahmood as the more fiscally orthodox choice.
Even so, the currency could not extend that advance, despite UK GDP data matching expectations with a modest 0.1% expansion in May. Traders instead appeared to lock in profits after the rally.
What comes next
Friday’s focus turns to the University of Michigan consumer sentiment index, which markets expect to rise from 49.5 to 51 in July, a reading that could underpin the Dollar. A lack of UK data may limit the Pound, though the source notes political optimism could still lend it some support.
Sources: Exchange Rates UK, Share Talk
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