The British pound gained versus the euro on Wednesday in a volatile day of trading that saw global markets fluctuate dramatically in response to Iran launching tens of ballistic missiles at a military base in Iraq housing US forces.
GBP/EUR was higher by 18 pips (0.15%) to 1.1783 as of 1pm GMT, taking the currency pair back towards the top of its 5-day price range.
While the threat of a new regional war in the Middle East was front and centre for many markets, the British pound and the euro were reacting to Brexit news and soft German economic data.
A shock decline in German Factory Orders saw the euro weaken in the early hours of Wednesday until renewed Brexit concerns saw the losses reverse as Sterling turned lower. Expectations for a 0.3% monthly rise in German factory orders for November were disappointed by a fall of -1.3% month-over-month. Activity in the German manufacturing sector has become a proxy for the health of the global economy amid the trade war between the US and China. The euro, as well as global stock markets had finished 2019 on a high on hopes that the lull in global activity would bottom out and rebound in 2020. Today’s factory order data raises questions about how strong the European growth recovery might be.
Speaking in Amsterdam, European Central Bank policy maker Klaas Knot reignited fears that Britain could crash out of the European Union without a deal. The comments saw the pound spiral lower with traders particularly sensitive to Brexit news as British Prime Minister Boris Johnson was set to meet the new European Commission president Ursula von der Leyen for talks in Downing Street on Wednesday.
The primary reaction in the Forex markets to the Middle Eastern tensions was via the Japanese yen, typically thought of as a haven in times of uncertainty. Then yen spiked higher on news of the Iranian missile strike but reversed most of its gains after tweets from the US President and Iranian foreign minister allayed concerns that the situation would escalate further.
