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EUR GBP Exchange Rate Slips on Rising Geopolitical Tensions

August 9, 2017 - Written by John Cameron

The Euro Pound (EUR GBP) exchange rate dipped this morning as currency markets were rocked by rising tensions on the Korean peninsula.

Euro (EUR) loses Out as Geopolitical Tensions Spook Currency Markets

The Euro was driven lower this morning as a sudden escalation in tensions between the US and North Korea rattled markets on the 10th anniversary of the financial crisis.

The surge in tensions was initially prompted yesterday evening as in responding to recent reports that North Korea had managed to miniaturised a nuclear weapon US President Donald Trump claimed that the rogue nation would be met by ‘fire and fury’ if it made further threats against the US.

Speaking to journalists in New Jersey Trump said;

‘North Korea best not make any more threats to the United States. They will be met with fire and the fury like the world has never seen.’

Trump’s warning follows a number of missile tests by Pyongyang, with the country carrying out even more launches in recent months as it tests its new long range ICBM that it claims gives it the capability to strike targets in the mainland US.

However North Korea has responded to Trump’s comments in kind, with its state media reporting that the country was considering a missile strike on US targets in Guam just hours later, with the Euro weakening as investors look for safer harbours to shelter in as fearing further escalation.

Stuart Culverhouse, global head of macro & fixed income research at Exotix Capital said;

‘The North Korean threat has been present in one form or another for some time, and despite periods of nervousness, markets generally have not tended to focus on it too much.’

‘Now, with the tension between the US and DPRK reaching a level that appears somewhat unprecedented in the last decade, if not longer, the question is whether this time is different.’

‘Time will tell, but markets may look to safe haven assets if things escalate. The best hope is for all parties to return to the negotiating table.’

The latest war of words comes just days after the UN approved a number of further economic sanctions against North Korea, which Pyongyang called a ‘violent violation of our sovereignty’ as it said that the US would ‘pay a price’.

European markets came also came under further pressure this morning as news that a number of French soldiers were rammed by a car in a potential terrorist heightened tensions even further.

Pound (GBP) Slowed by BoE Report

However Sterling’s gains were tempered somewhat this morning following the release of a UK business report from the Bank of England (BoE).

In its latest Agents’ summary of business conditions the Bank reported that UK wage growth remains weak despite firms struggling to hire staff, saying;

‘Recruitment difficulties had edged higher, and were gradually broadening across sectors and skill areas. Despite this, labour cost growth had been modest, with pay awards clustered around 2%–3%.’

The BoE previously warned that anaemic wage growth is likely to have a major impact on the UK’s economic growth over the coming months as tighter household finances likely leads to a drop in consumer spending.

EUR GBP Exchange Rate Forecast: UK Trade Figures to Disappoint on Thursday?

Looking ahead the EUR GBP exchange rate may rally again tomorrow as the UK releases its latest trade balance figures, with economists forecasting that Britain’s trade deficit will have risen from £3.07bn to £3.6bn.

The Pound may also be pressured by the UK’s industrial production data on Thursday as analysts predict that factory output will have contracted for the third consecutive month in June.

Meanwhile the Euro’s attempts to advance may be slowed slightly by France’s own industrial production figures as markets expect output to have plummeted from 1.9% to -0.4% at the end of the second quarter.

Current Interbank Exchange Rates

At the time of writing the EUR GBP exchange rate was trending around 0.9035 and the GBP EUR exchange rate was trending around 1.1067.

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