Pound Drops Below 1.14 vs. Euro as Markets Unwind War Trades
- Written by: Gary Howes
File image of Donald Trump. Source: White House / Official White House Photo by Daniel Torok.
Markets react to unconfirmed reports that Iran's president said the country was ready to end the war, assuming some guarantees were put into place.
An unwind of war trades saw Pound sterling drop against the euro but rise against the dollar.
Pound-euro fell below 1.15 to reach 1.1440 in early mid-week trade, down from 1.1535 on Monday, while euro-dollar rose to 1.1560, from 1.1450.
The adjustments followed a fall in oil prices following unconfirmed reports that Iran's president said the country was ready to end the war, assuming some guarantees were put into place.
Also, U.S. President Donald Trump will address the nation at 9 pm Washington time on Wednesday with "an important update on Iran."
Earlier, he suggested in remarks to reporters that the conflict could end in two to three weeks.
The pound had risen steadily against the euro through March and hopes that the war will end see some of those gains unwind.
If the full extent of the war premium unwinds, sterling-euro could be looking at a decline to 1.14, which is where it was prior to hostilities starting.
The dollar was the biggest winner of the war, and it is therefore at risk of a bigger unwind over the coming days should hopes for a ceasefire continue to grow.
"The dollar has clearly established its status as the premier safe-haven currency during geopolitical stress and supply shocks," says a note from Bank of New York.
BNY notes in a new research note that the euro proved particularly vulnerable during this time. "What is surprising during the recent unwinding process, however, is that the burden of adjustment has disproportionately fallen on EURUSD."
This means that the euro-dollar stands to outperform in the rebound that would come in the wake of building ceasefire hopes.
If EUR/USD is rising faster than GBP/USD, then GBP/EUR would automatically fall, which is why we think the exchange rate has come under pressure over recent days.
