Foreign exchange markets were erratic on Friday as the confluence of multiple conditions impacted trading conditions. Overall the major EUR/USD currency pair, during the American session traded just above the 1.1500 resistance level. It ultimately failed to hold this line as the US dollar continued to gain strength. At the same time, GBP/USD dropped below the important 1.3500 level, pressured mainly by a string of weak UK retail sales and by a revival USD.
As investors continued to digest the latest events coming out of the Middle East, an air of caution was palpable throughout the entire market. Fears of a confrontation between Tehran and Tel Aviv, capped by Iran-Israel attacks of up to 900 missiles daily, sent traders rushing for cover. That mood of unpredictability drove the pressure on the EUR/USD. Consequently, it had a hard time staying below 1.1500.
The effect of these geopolitical strains was not confined only to the euro but affected other currencies almost as much. GBP/USD heading into negative territory on the day, near the 1.3450s as the week started to wrap up. The weakness of the pair was largely a reflection of negative UK retail sales data. This unfortunate series of events dented investor confidence and ignited a second wave of investment demand for safe-haven assets.
In reaction to these events, gold prices rocketed past $3,360, showing just how scared investors are feeling right now. The precious metal gathered near-term momentum and traded near $3,370 ahead of the weekly close, indicating a shift in risk sentiment. Gold is skyrocketing and so are clashes over the impacts of its pursuit. This increase is part of a larger movement towards a risk aversion in the financial markets.
The catalyst for the surge lower in GBP/USD was largely weak UK retail sales figures. These numbers added to worries that the UK economy was going down the tubes, which in turn fed the flight to the safe-haven US dollar. With a greater risk aversion, there were more clear and obvious headwinds with EUR/USD and GBP/USD by the strengthening dollar.
The EUR/USD exchange rate has been greatly impacted by the recent tensions in the Middle East. Investor sentiment has changed drastically in response to continued geopolitical events. These stresses, coupled with another dashed hope for a positive UK economic surprise, pushed risk aversion tense to the market. By consequence, investors became much more skittish.