· Currencies whipsawed on Wednesday as the safe-haven yen first jumped on news of Iranian missile strikes on bases hosting U.S. troops in Iraq, before retreating as investors wagered it would not trigger a wider conflict in the region.
The yen, regarded as a haven in times of turmoil by virtue of Japan’s status as the world’s biggest creditor, had leapt as much as 0.8% to 107.63 per dollar. But by afternoon, it was back only a little above where it began the day.
“If the market was really worried that the end of the world was nigh, dollar/yen would have collapsed, and that’s clearly not been the case,” said Stuart Oakley, global head of flow FX at Nomura in Singapore.
Investors’ focus will now be on what response, if any, the United States is planning.
“Essentially people are betting that this is not going to be our main focus three months from now,” said Westpac analyst Sean Callow.
Elsewhere, the dollar mostly hung on to overnight gains on other major currencies, and wound up steady against the Aussie, kiwi, euro and pound after a volatile session.
· EUR/USD little changed after German Factory Orders drop 1.3% MoM in Nov vs. +0.3% exp
The German Factory Orders data unexpectedly dropped in November, suggesting that the manufacturing sector in Europe’s largest economy has not yet bottomed out and the recession still looms.
The shared currency showed little reaction to the below-forecast German Factory Orders data, leaving the EUR/USD pair mostly unchanged around the 1.1150 region amid a calm market environment.
· According to Danske Bank analysts, market focus is on the Iranian attack this morning and on possible retaliation measures from the US.
Key Quotes
“In the majors, it is a fairly thin data calendar with a string of tier 2 releases with notably consumer and business confidence data in the euro area . For the economic sentiment indicator, we will watch whether it follows the December PMI signal (stabilisation) or IFO (further improvement).”
“Today, PM Boris Johnson will meet European Commission chief Ursula von der Leyen in Downing Street for their first face-to-face talks. Von der Leyen is also scheduled to hold a speech on Brexit. We do not expect any major news given that the EU is only about to agree on a negotiating mandate after the UK has formally left the EU.”
· Iran’s army renewed a demand for U.S. troops to be withdrawn from the Middle East, state TV reported on Wednesday, after the elite Revolutionary Guards launched missile attacks on American targets in Iraq.
“Now that they have understood our power, it is time for the United States to withdraw its troops from the Middle East,” Iran’s armed forces chief of staff General Mohammad Baqeri said in a statement, according to state television.
· Singapore Airlines said Wednesday it was diverting all flight routes from Iranian airspace.
The announcement came after Iran launched more than a dozen ballistic missiles against multiple bases housing U.S. troops in Iraq.
· President Donald Trump has responded to Tuesday night’s attack by Iran on US and coalition forces stationed at bases in Iraq.
“All is well! Missiles launched from Iran at two military bases located in Iraq,” Trump tweeted. “Assessment of casualties & damages taking place now. So far, so good! We have the most powerful and well equipped military anywhere in the world, by far! I will be making a statement tomorrow morning.”
· Reuters is out with the latest comments from the Iranian supreme leader Ali Khamenei, with the key headlines noted below.
“The US is Iran's enemy.
US troops should leave the region.
US presence in the region must come to an end.
Resuming nuclear talks with US will pave way for the US dominance.”
· Tehran’s retaliation against the U.S. killing of Iranian top commander Qasem Soleimani has come “too fast and too furious,” and there’s now a “real danger” the situation could get out of hand, an expert on Middle East security affairs said Wednesday.
“There is a real danger this is going to get out of hand,” Vatanka said.
“It’s too early to say what the U.S. reaction likely will be,” he said, adding that the number of casualties will be “a big factor” that determines America’s next move.
The expert explained that the move by Tehran showed that authorities “decided to lash out to let Trump know that they can also hurt him” and not be cornered by the president’s so-called maximum pressure campaign to rein in Iran’s pursuit of nuclear infrastructure and regional aggression.
“The big question is what will President Trump do? Because so much of this is about his reelection, he’s going to have to make a decision fast whether a war with Iran and all the chaos that come with it in the Middle East is going to help him or help him be defeated in the November election coming up,” said Vatanka.
· A Ukrainian airliner crashed soon after taking off from Tehran’s Imam Khomeini airport on Wednesday, killing all 176 people aboard, Iran’s state television and Ukraine’s leaders said.
The Boeing 737 belonging to Ukraine International Airlines crashed near the airport and burst into flames. Iranian TV said the crash was due to technical problems but did not elaborate.
· There might be an opportunity for the U.S. and Iran to take tensions down a notch after the latest Iranian strikes on Iraqi bases housing American troops, said a former U.S. ambassador on Wednesday.
“It all depends on what turns out to have been the damage or any potential casualties,” Richard Schmierer, U.S. ambassador to Oman from 2009 to 2012, told CNBC’s “Street Signs Asia.”
“And so this might be the opportunity — in the absence of casualties — for the two sides to now say: ‘okay we have each done something, we can stand down,’” said Schmierer, who is currently chairman of the board of directors at the Middle East Policy Council.
· Oil prices were about 1% higher on Wednesday, but well below highs hit in a frenetic start to the trading day after a rocket attack by Iran on American forces in Iraq raised the specter of a spiraling conflict and disruption to crude flows.
Prices gave up most of their gains after early surges as analysts said market tension could ease as long as oil production facilities remain unaffected by attacks. Tweets by U.S. President Donald Trump and Iran’s foreign minister also appeared to signal a period of calm - for now.
Brent crude futures were up 67 cents, or 1%, to $68.94 by around 0613 GMT, after earlier rising as high as $71.75, the most since mid-September 2019.
West Texas Intermediate crude futures gained 47 cents, or 0.8%, to $63.17 a barrel. It earlier hit $65.85, the highest since late April last year.
Reference: Reuters, FX Street, CNBC
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