Currency markets were warmed by an elusive sense of optimism on Monday following rumours that a ceasefire between Israel and Hezbollah was close. Any deal would first have to be approved by the Israeli cabinet today but a weakening US dollar was a sign of improved geopolitical sentiment.
The pound and the euro still face a myriad of other risks, which meant the buoyant mood never morphed into full-blown jubilation. Sterling crept down by around half a cent against the euro to begin the week, while EUR/USD rallied by a slightly larger amount.
Geopolitical matters are rarely a major concern for currency markets except for in times of real distress. Due to recent goings on, it’s fair to say that they have collectively agreed this is one of those occasions. With an improvement in the Middle East tantalisingly close, any agreement is likely to spark relief and result in short-term volatility, particularly for GBP/USD and EUR/USD.
While the euro performed well, it did not do so on the back of scintillating economic news. In fact, the key German IFO (Institute for Economic Research) business climate survey fell in November and remains several points off its yearly high set back in May.
IFO president Clemens Fuest provided a characteristically forthright, Teutonic assessment: “The German economy is floundering. Companies were somewhat sceptical again about the coming months.” That view was backed up by the data, which suggests businesses are fretting about potential trade tariffs, among other things.
Monday began with the news that US president-elect Donald Trump had nominated Scott Bessent to be his treasury secretary. Bessant is the ex-fund manager for billionaire George Soros and is widely viewed as a safe pair of hands by insiders. The US dollar fell against its rivals to begin the day and would see those losses added to on news from the Middle East.
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