Geo-political developments dominated on Friday following a US military strike on Iraq which killed a key Iranian military commander.

Risk appetite held firm on Thursday with US equity markets at fresh record highs. The dollar recovered ground as European currencies stumbled on subdued data, but USD/JPY dipped as US yields declined.

Geo-political developments dominated on Friday following a US military strike on Iraq which killed a key Iranian military commander.

Risk appetite dipped sharply amid fears over an escalation in Middle East tensions with renewed demand for defensive assets. US equity futures declined sharply after the attack, although Asian losses were limited.

USD/JPY also declined to 9-week lows near 108.00, but the dollar held wider gains as most commodity currencies retreated.

Precious metals secured sharp gains on geo-political fears with gold at 4-month highs.

US jobless claims declined slightly to 222,000 in the latest week from 224,000 previously while Challenger layoffs declined in the latest month which suggested that the labour market was still firm. The final manufacturing PMI index was marginally lower at 52.4 from the flash reading of 52.5 which had little impact.

After sharp losses at the end of 2019, the dollar recovered ground on Thursday while commodity currencies also corrected weaker. EUR/USD gained strong support into the London fix and briefly touched 1.1200 again before a fresh reversal to the 1.1170 area.

The US ISM manufacturing release will be important on Friday for further evidence on US industrial trends and will also have an impact on global economic sentiment. The December Federal Reserve minutes and comments from Fed speakers will also be watched closely. EUR/USD drifted lower on Friday as safe-haven demand supported the dollar.

The December UK PMI manufacturing index was revised only marginally higher to 47.5 from the flash reading of 47.4 and remained the weakest reading for over seven years. Orders continued to decline on the month and employment dipped for the ninth successive month. Overall business confidence for the year ahead remained broadly optimistic, but markets will want definitive evidence of improvement early in 2020 before taking a more optimistic stance.

Sterling drifted lower after the data and losses accelerated later in the session, primarily as a correction after sharp gains on the final trading day of 2019.

The UK currency briefly recovered ground into the London fix, but GBP/USD gains faltered ahead of 1.3200 with a fresh dip to below 1.3150. GBP/EUR also made significant net losses to hit around 1.1740 before consolidation around 1.1765. Sterling edged lower on Friday ahead of UK construction data as geo-political tensions curbed potential currency demand.

Economic Calendar

Expected Previous
08:55 German Unemployment Rate(M/M)(DEC, 2019) 5.00% 5.00%
09:30 GBP Consumer Credit(NOV, 2019) - 1.326B
09:30 GBP PMI Construction(DEC, 2019) 44.5 45.3
09:30 GBP Mortgage Approvals(NOV, 2019) 65.50K 64.60K
13:00 Germany CPI (M/M)(DEC, 2019) 0.30% -0.80%
13:00 Germany CPI (Y/Y)(DEC, 2019) 1.40% 1.10%
13:00 Germany Harmonised CPI (M/M)(DEC, 2019) 0.40% -0.80%
13:00 Germany Harmonised CPI (Y/Y)(DEC, 2019) 1.50% 1.20%
15:00 US Manufacturing ISM(M/M)(DEC, 2019) - 48.1

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.