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US/Iran tensions continue to dominate news

GBP - British Pound

It was a good day for sterling yesterday as the first day back proper after Christmas for many traders saw the pound rally. The move higher began at 8am with GBP/USD pushing through 1.31. It was then given another leg-up by a better than expected final Services PMI which was revised up to 50 from a prelim reading of 49.0. The improvement in the closely followed survey was likely down to improved market sentiment on the back of the general election result seeing the Tories achieve a large majority. Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply who helps put together the survey commented: "Other clouds of uncertainty must also include the potential for further political instability as (Brexit) negotiators and policymakers take the next steps. But with the fastest level of job creation since the summer and a bounce in business optimism not seen since September 2018, commentators could be forgiven for believing there could potentially be a turning point on the horizon if the UK plays its cards right."

Attention now turns to parliament which returns today and tomorrow's meeting between Prime Minister Boris Johnson and new EU Commission President, Ursula von der Leyen. The pair are due to have informal/initial talks over trade with von der Leyen also due to give a speech at the London School of Economics titled, Old Friends New Beginnings. Any comments from the new Commission President re: trade will likely be scrutinised by traders given 11 months is a very tight deadline to get an agreement between the two sides signed off. GBP/USD is at 1.3175 with GBP/EUR at 1.1785.

Key Movers

Markets are tentatively continuing to monitor the situation between the US and Iran after the US assassination of general Qasem Soleimani on Friday. A memorial service for the slain general drew millions to Tehran yesterday as Iran's political hierarchy, including Supreme Leader, Ayatollah Khamanei paid tribute to Solemeini and poured scorn on the US. A funeral service in his hometown of Kerman has taken place this morning again drawing huge crowds paying their final respects to the man who was considered the 2nd most powerful figure in Iran.

Given Iran's limited capability to retaliate against the US, markets have calmed somewhat since the bombing however US President Donald Trump appears to be doing his best to antagonise the Iranian regime taking to his favourite medium of communication, Twitter, to proclaim: IRAN WILL NEVER HAVE A NUCLEAR WEAPON! as well as other comments/retweets over how he made the right decision to bomb the general's convoy in Iraq.

Most major stock exchanges are up this morning, gold has retreated from a seven year high, and the swissy and yen have retreated. The key risk barometer, USD/JPY is back up to 108.45 up from a three month low of 107.74 seen yesterday.

Further reaction to the bombing will be of key focus today however there are some other areas of interest traders will be keeping an eye on. This morning sees the latest prelim reading of inflation from the Eurozone with an uptick from 1% to 1.3% pencilled in. This afternoon sees US ISM Non-Manufacturing PMI from the States with a move higher from 53.9 to 54.5 eyed. EUR/USD trades at 1.1185.

Expected Ranges

GBP/USD: 1.3130 - 1.3270 ▲

GBP/EUR: 1.17 - 1.1835 ▲

GBP/AUD: 1.8980 - 1.9165 ▲

GBP/NZD: 1.9710 - 1.9870 ▲

GBP/CAD: 1.7020 - 1.7160 ▲