Iran attack on US troops triggers wave of risk aversion

he Japanese yen was once again the main beneficiary, briefly rallying back below the 108 level during Asian trading before giving back much of its gains. The euro and sterling also both sold-off as markets opened for London trading this morning, with investors fearing that the attack could trigger an escalation in the spat.

The moves have, however, been relatively contained so far, and there are no signs yet that traders are bracing for a full-blown regional conflict. A good barometer of this is the Swiss franc, a traditional safe-haven during times of market uncertainty, which has been pretty much unchanged in the past 24 hours.

It’s clear that if a significant escalation or war between the two countries was genuinely in the offing we would have seen a much more meaningful reaction in the FX market – USD/JPY, in particular, would have sold-off much more aggressively than it has.

Johnson to stress Brexit deadline with EU leaders

Moves in the major currencies continue to be driven largely by investors nerves surrounding the Iran tensions, rather than domestic news.

In the UK, Boris Johnson’s Brexit deal has returned to the House of Commons, with politicians scrutinising the legislation that would bring the bill into law. While it is not yet set in stone that the UK will leave the EU by the end of the month, the overwhelming backing the WAB received in December ensures that this is effectively a foregone conclusion.

The real concern for investors is whether or not Johnson’s party will continue to reject calls for an extension to the transition period. So far, the PM has been relentless in his view that a delay beyond the 31st December is not on the cards, something he is expected to stress with EU leaders later on today.

Eurozone sentiment data ticks higher

Meanwhile, the euro has continued to trade within the 1.11-1.12 level throughout much of the year so far.

Some encouraging sentiment data out of the Eurozone this morning failed to support the common currency which, as mentioned, traded modestly lower this morning after the Iran attack. December’s economic sentiment index rose to 101.5, up from November’s 101.2. We are beginning to see a gradual improvement in these key business and consumer sentiment indices across much of the Euro Area which, combined with the recent stabilisation in the critical PMI measures, bodes well for growth in the bloc in 2020.

Attention now turns to this afternoon’s US ADP employment change number, which tends to provide a decent gauge as to the strength of the more critical nonfarm payrolls report (set for release on Friday).