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Greenback strengthens as U.S. pulls out of Iran nuclear deal.

By Alex Edwards

The dollar strengthened through the day yesterday, seeing GBP/USD fall to a four month low on Tuesday. It was a similar theme in other major currency pairs as market participants keenly awaited Trump’s speech on the Iran nuclear deal. Markets were busy selling the fact, even in advance of the fact, with WTO crude falling below 70.00 to a low of sub 68.00.

Fortunes turned mildly for the pound come the late afternoon London session as news broke that Japan’s Takeda Pharmaceutical had agreed to buy the UK-listed Irish drugmaker Shire for $46 billion. Cable pushed back through the 1.35 figure and on to a high of 1.3560. It’s retraced again however, and as Trump inevitably announced that the U.S. would pull out of the Iran nuclear deal, dollar strength pulled through, mostly on safe haven demand. European leaders are, however, pledging to uphold the pact, but whether that carries much sway we’ll have to see. For now, volatility in oil and commodity linked currencies looks set to continue.

Markets remain jittery this morning, oil is back through $70.00 (in fact it’s looking like it will push through $71.00 very shortly), but GBP/USD seems steady, perhaps as investors take a cautious approach to trading in advance of the Bank of England monetary policy announcement tomorrow. As far as markets’ are concerned it’s less about will they or won’t they hike rates (they won’t!), more about whether they’ll be leaving the door open to a hike in August, as our esteemed colleague Jake Trask pointed out in his interview with Bloomberg this morning.

We’ve seen dollar strength across the board all week so far. Of recent, the greenback has been bid higher on safe haven demand, prompted largely by the news the U.S. is pulling out of the Iran nuclear deal and will be re-imposing sanctions. US equities also experienced wild swings before and after Trump’s speech.

The focus in markets remains firmly on the fall-out from Trump’s announcement last night. European leaders are already scrambling in an attempt to keep the deal in-tact and depending on how this story develops, as well as rumors and Iran related headlines, we could well expect to continue to see dollar volatility through until the end of the week, if not longer. To this extend, the release of US producer price data may take somewhat of a back seat this afternoon.

EUR/USD has continued its downward trend over the last 24 hours, largely a result of dollar strength and despite the release of better than expected German Factory Orders and a German Trade Balance yesterday morning. The pair now looks close to making a break below the 1.18 figure; this morning’s weaker than expected French Industrial Production print will go a little way to backing this theory. Moreover a lot will depend on the reaction to the news on the Iran deal.

The threat of a snap election in Italy is also weighing on the single currency this morning. As far as data is concerned, there isn’t much on the docket for today, although that’s not to say we shouldn’t expect more volatility, especially so in these trading conditions.

The Australian dollar marked fresh 11-month lows yesterday, tumbling through 0.75 to touch 0.7434, and onwards to .7308 early this morning. It’s been one of the worst performer’s when measured against G10 counterparts. Softness in local retail sales data for March saw the AUD teeter marginally above support at 0.75 before a renewed demand for the US dollar and a commodity block sell off weighed heavily through the overnight session.

There isn’t any top tier Australian economic data due over the next 24 hours. MI Inflation Expectations is due for release later tonight and will likely only get a muted in reaction in markets.

The CAD whipsawed throughout most of the London and New York sessions yesterday, much like the oil price. It’s ultimately weaker vs. the dollar but hasn’t got that much weaker from this time yesterday. USD/CAD didn’t quite make it through 1.30, although it came very close, and has settled back overnight to open in London at 1.2945.

Oil, Iran, NAFTA and jobs data on Friday all point to more volatility for the Canadian dollar over the next few days. 1.30 may well still be broken.

Like other commodity linked currencies the kiwi was sold heavily throughout the day yesterday. NZD/USD continues on the back foot this morning too, ahead of tonight’s monetary policy announcement from the RBNZ. It will be Governor Adrian Orr’s first meeting, at which the central bank is fully expected to leave interest rates on hold a 1.75%

With a change in Governor at the helm, market participants will be looking for any change in stance or rhetoric from recent statements around inflation targets and monetary policy.