The British pound was little changed against the US dollar on Wednesday. The US dollar saw whipsaw price moves overnight in response to Iran launching tens of ballistic missiles at a military base in Iraq housing US forces. The British pound gave up overnight gains to turn lower amid renewed fears of a No Deal Exit from the European union at the end of 2020.
GBP/USD was lower by a mere 5 pips (-0.04%) to 1.3109 as of 1pm GMT, taking the currency pair into the bottom half of its 5-day price range.
The US dollar plunged against the Japanese yen on news of the Iranian missile strike but reversed most of its losses after tweets from the US President and Iranian foreign minister allayed concerns that the situation would escalate further. Following the initial knee-jerk gains by safe haven currencies like the yen and Swiss franc, the British pound made steady gains against the dollar overnight since it tends to rise when risk appetite is strong or recovering.
A strong start for the British pound to the New Year started to flounder on Tuesday when attention turned back towards parliament and the passing of the Brexit withdrawal agreement. The chances of the Brexit deal failing to get through the UK parliament for a fourth time seems remote, though still possible.
European Central Bank policy maker Klaas Knot restarted 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.
Looking forwards, the December ADP US employment data will be released when US markets open. Expectations are that 160k US jobs were created in the US private sector in December, up from 67k in November. There was a large disparity between the weak ADP numbers last month and the superb non-farm payrolls so some return to the mean, in line with expectations seems likely.
