Despite the escalation in the war of words between the Iranian leadership and US President Trump in the past 24 hours, which has included numerous threats and counter-threats, financial markets have taken somewhat of a step back. Volatility in currency markets has edged up since late November but remains very low in both absolute and historical terms.
The price of Brent crude oil, which had surged above $70/barrel yesterday, has fallen back to $68.3 and the Dollar has been broadly stable in trade-weighted terms. While it has appreciated against most developed market currencies, including 1% versus the Australian Dollar, it has weakened slightly against Asian currencies, in particular the Chinese Renminbi.
The EUR/USD cross, which was hovering near 1.12 yesterday, has fallen to 1.116 at time of writing despite Eurozone core and headline CPI-inflation in December (both 1.3% yoy) coming in line with expectations, based on preliminary data.
