· The safe-haven yen fell from three-month highs against the dollar on Wednesday, as investors grew more optimistic that Iran’s attack on U.S. forces in Iraq overnight was unlikely to escalate into a full-blown regional conflict.
Another safe haven, the Swiss franc, also pared gains that took it to a more than one-week peak versus the greenback earlier in the global session. Gold also gave up earlier gains as did crude oil.
Traders said the focus would now turn to what response, if any, the United States is planning. Iran said it had fired missiles at U.S. targets in Iraq on Wednesday in retaliation for last week’s U.S. drone strike that killed Iranian commander Qassem Soleimani, stoking fears of a new war in the Middle East.
However, Twitter posts from both sides playing down the prospect of further escalation helped calm currency markets. U.S. President Donald Trump tweeted that a damage assessment was “So far, so good!” and said “all is well,” promising a further statement later on Wednesday.
Iranian Foreign Minister Mohammad Javad Zarif tweeted that the attack was “proportionate” and that “we do not seek escalation or war.”
“The markets tend to exaggerate geopolitical developments,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York. “I do think that this is a relief rally and sort of the mirror image of the knee-jerk sell-off that we saw last week.”
The yen, regarded as a safe haven in times of geopolitical turmoil due to its liquidity and Japan’s current account surplus, slipped, pushing the dollar up 0.66% at 109.14 yen.
The dollar earlier dropped to a three-month low of 107.66 yen following Iran’s strike. The dollar was little changed against the Swiss franc, at 0.9702 franc, after falling to a more than one-week trough earlier in the global session.
A higher-than-expected U.S. private payrolls number for December also boosted the dollar, with the dollar index rising 0.27% to 97.27.
The ADP National Employment Report on Wednesday showed private payrolls jumped month after an upwardly revised 124,000 gain in November. Economists polled by Reuters had forecast private payrolls advancing 160,000 last month following a previously reported 67,000 rise in November.
“The market still has the ultimate ballast, or anchor, which is the U.S. economy,” said Bannockburn’s Chandler. “Even though there’s some variance month-to-month between the ADP and the non-farm payrolls report, the ADP is still a good indicator of the underlying trend.”
The euro was down 0.3% at $1.1124, hovering near session lows.
· World Bank trims 2020 growth forecast amid slow recovery for trade, investment
The World Bank on Wednesday trimmed its global growth forecasts slightly for 2019 and 2020 due to a slower-than-expected recovery in trade and investment despite cooler trade tensions between the United States and China.
The multilateral development bank said 2019 marked the weakest economic expansion since the global financial crisis a decade ago, and 2020, while a slight improvement, remained vulnerable to uncertainties over trade and geopolitical tensions.
In its latest Global Economic Prospects report, the World Bank shaved 0.2 percentage point off of growth for both years, with the 2019 global economic growth forecast at 2.4% and 2020 at 2.5%.
Advanced economies and emerging markets and developing economies also show divergent prospects in the World Bank forecasts. Growth in the United States, the euro area and Japan is expected to decline slightly to 1.4% in 2020 from 1.6% in 2019 — a markdown of 0.1 percentage point for both years — due to continued softness in manufacturing and the lingering negative effects of U.S. tariffs and retaliatory measures.
But emerging market economies are expected to see a pickup in growth to 4.3% in 2020 from 4.1% in 2019, although these are both a half percentage point lower than forecasts made in June.
China’s growth rate is projected to decelerate to 5.9% in 2020, a 0.2 percentage point reduction from the June forecast, as the world’s second largest economy deals with fallout from U.S. tariffs, the World Bank said.
Kose said the trade war hit China’s manufacturing and exports hard last year, holding growth to 6.1%, a 0.1 percentage point reduction from the World Bank’s June forecast. Tighter regulations on China’s shadow banking sector also dented investment.
China’s outlook could worsen if trade tensions with Washington flare up again, or there is a disorderly unwinding of debt. But Kose said China had sufficient policy buffers to cushion any deeper slowdown.
· President Donald Trump decided Wednesday that taking his foot off the gas in the rapidly escalating conflict between the United States and Iran was the right move.
"The American people should be extremely grateful and happy," Trump said, noting that no Americans or Iraqis had been killed in the strikes. He added: "Iran appears to be standing down, which is a good thing for all parties and a good thing for the world."
Trump's measured tone on Wednesday was a striking contrast to his approach to the Iranians just days ago on Twitter.
It's not clear what had changed Trump's mind -- and tone -- over the days between those tweets and his address on Wednesday. Perhaps it was that the missile strikes resulted in no deaths. Or that the Iranians had given Iraq a heads up that the strikes were coming. Or that Trump's administration has grown increasingly certain that Iran purposely targeted sites and areas where no one would be killed as a way to retaliate for the killing of Iranian commander Qasem Soleimani without starting a broader conflict.
After the United States and Iran stormed to the edge of a cliff this week, early indications suggest that the two countries apparently have decided they do not want to jump, at least not yet.
Mr. Trump, speaking from the White House on Wednesday morning, repeated a pledge to prevent Iran from obtaining a nuclear weapon — but did not order additional use of force. He vowed to impose more sanctions but also said that “the United States is ready to embrace peace with all who seek it.”
· Iranian ballistics missile attacks on two Iraqi military bases housing American troops early Wednesday was a “slap on the face” to the U.S., Iran’s supreme leader Ayatollah Ali Khamenei said in a speech hours after the strikes.
But “such military actions are not enough,” Khamenei said on Twitter, suggesting further acts of revenge for the U.S. killing of top Iranian general Qasem Soleimani.
· U.S. Vice President Mike Pence said on Wednesday the United States has received intelligence that Iran has asked its allied militias not to attack U.S. targets.
“We’re receiving some encouraging intelligence that Iran is sending messages to those very same militias not to move against American targets or civilians, and we hope that that message continues to echo,” Pence told CBS News in an interview.
· Iran’s missile attack on Wednesday had been intended to kill U.S. personnel at Iraq’s al-Asad airbase, the top U.S. military officer said, in remarks that suggested that Tehran was, and perhaps still is, willing to risk major U.S. retaliation.
Asked if perhaps Iran would see this as an incomplete mission, given the lack of U.S. fatalities, Milley said: “I think it’s perhaps too early to tell.”
Milley said he and others in the military “fully expect” Shia militia groups in Iraq, backed by Iran, to carry out attacks against U.S. and U.S.-led forces in Iraq and Syria: “That’s a very real possibility.”
· British Prime Minister Boris Johnson and his Canadian counterpart, Justin Trudeau, discussed need for urgent de-escalation on all sides following Iranian missile attacks on military bases housing U.S. troops in Iraq overnight, a spokesperson for Johnson said.
In a phone call on Wednesday, the leaders also discussed working together and with international partners to ensure Iran is prevented from acquiring a nuclear weapon.
· Three Katyusha rockets fell on Wednesday inside Baghdad’s heavily fortified Green Zone which houses government buildings and foreign missions, causing a fire, Iraqi police sources told Reuters.
Sirens were sounding inside the Green Zone, and at least one of the rockets fell 100 metres away from the U.S. embassy, the sources said.
· The House will vote Thursday on a resolution to curb President Donald Trump’s power to take military action against Iran, Speaker Nancy Pelosi said.
The announcement Wednesday comes only a day after Tehran launched missiles at Iraqi bases housing U.S. forces. Earlier in the day, the president said that Iran “appears to be standing down,” adding that he would ratchet up “punishing” sanctions rather than take military action to retaliate.
· Oil futures fell more than 4% on Wednesday in a wild swing, soaring close to a four-month high in early trade on an Iranian rocket attack on U.S. forces in Iraq before retreating as the countries quickly ratcheted back tensions.
U.S. President Donald Trump backed away from days of angry rhetoric against Iran as the two countries tried to defuse a crisis over the American killing of Iranian military commander Qassem Soleimani.
“The fact that we have this great military and equipment ... does not mean we have to use it,” Trump said in an address from the White House, noting Iran appears to be standing down.
Before Trump’s address, prices were already retreating from overnight highs after tweets by the U.S. president and Iran’s foreign minister signaled at least temporary calm.
Brent futures fell $2.83, or 4.2%, to settle at $65.44 a barrel, their lowest close since Dec. 16. In early trade, the contract hit its highest since mid-September at $71.75.
The global benchmark had been trending higher since hitting an October low of $56.15 per barrel; the session high on Wednesday was 28% above that level.
U.S. West Texas Intermediate (WTI) crude fell $3.09, or 4.9%, to settle at $59.61 per barrel, its lowest close since Dec. 12. The session high of $65.65 was the highest since late April.
Reference: CNBC, Reuters, New York Times, CNN
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