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Yen on back foot as tensions ease in Iran

Chris Lee

Investors breathed a sigh of relief on Wednesday and into Thursday after it was signalled by President Donald Trump that there would be no more military intervention in the Middle East.

Trump, whose administration authorised the missile strike last week which killed an Iranian commander, said that there was not a guaranteed need for the US government to react to Iran’s revenge attempts with force.

Since the killing, the Iranian government has attempted to avenge it by firing missiles at US military bases in Iraq.

In the days following the arrival of the tension, the safe haven currencies – such as the Japanese yen and the Swiss franc – both found themselves rising in value.

But with the slight warming of relations between the two countries, it began to become apparent that sentiment in favour of the safe havens was dwindling.

The Japanese yen, whose status as one of the world’s most liquid currencies renders it perhaps the most famous safe haven, was down.

This gave the greenback a chance to surge ahead and reach its highest point in over a week – at 109.19 yen.

This was a far cry from the position of 107.66 yen which the dollar found itself at when the Iranian strike first occurred.

At that time, it fell to its worst performance in three months – and saw 107.66 at one stage.

The dollar continued its dominance in its pair against the Swiss franc, too.

It was up by 0.3% in this pair, and was spotted at 0.9737 at one stage.

Even when compared to a basket of currencies which are not all safe havens, meanwhile, the dollar was able to advance.

The dollar index, a tool used to work out how the dollar is performing in proportion to many of its key competitors in the currency markets, was up by 0.3% at one stage – reaching 97.30 by the time the middle of the afternoon came around.

This was also partly to do with domestic economic data releases as well as the realignment of the global geopolitical situation.

A national employment report from the ADP, for example, revealed that private payrolls were up by 202,000 jobs over the course of last month.

This followed a gain of 124,000 across the course of November – suggesting a degree of robustness in the US labour market.

According to analysts, the US economy still looks set to be the key area of focus for the markets in the times to come.

“The market still has the ultimate ballast, or anchor, which is the U.S. economy,” said Marc Chandler, who is the chief market strategist at Bannockburn Global Forex.

The single European currency was one of the main victims of the day’s trading. Despite the fact that it had gone up somewhat during the early moments of the Iran tensions, it went down by almost half a percentage point on Wednesday and into Thursday.

It was spotted down by 0.4% at one stage, around the $1.1108 region.

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Chris Lee
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