Pound v US dollar: USD slides as North Korea launches missile over Japan

Sterling is currently at $1.296 against the US dollar, up 0.31 per cent from its opening levels of around $1.292 as geopolitical tensions rise.

Markets were rocked overnight on Monday as North Korea conducted its latest missile test, firing it over Japan and shocking the international community.

While tensions around the Korean Peninsula had cooled in recent weeks following a flurry of missile tests by Pyongyang at the start of August, today’s launch is seen as one of the most provocative to date and saw tensions flare once again.

Japanese Prime Minister Shinzo Abe called the latest test an "unprecedented" threat to his country, with Mr Abe saying that he and US President Donald Trump have both agreed that further pressure on the rogue nation is needed.

China also warned that that tensions in the region had reached a “tipping point”, although North Korea’s only ally also placed some of the blame on the US and South Korea over their recent joint military drills, with investors fearing that China could push back should the US seek to place further sanctions on Pyongyang.

David Madden, analyst at CMC Markets UK, said: “Tensions have been running high for a number of weeks now in relation to North Korea, and this move has sent traders running for cover. 

"The situation surrounding North Korea has become more serious now, and we are seeing a risk-off strategy being adopted by traders.”

Meanwhile, the pound’s advance this morning was slowed slightly by the release of the UK’s latest housing data as Nationwide reported that house prices unexpectedly slumped in August.

Nationwide’s latest house price index saw prices decline -0.1 per cent in August, while annualised figures tumbled from 2.9 per cent to 2.1 per cent, the lowest rate since May.

Analysts suggest that today’s data is just the latest sign that Britain’s housing market is cooling as softening economic conditions place further pressure on consumer finances.

Looking ahead, movement in the GBP/USD exchange rate is likely to be closely tied to market reaction to Donald Trump’s speech on his long anticipated tax reform plans tomorrow afternoon.

With investors underwhelmed by their first look at the proposed tax reforms earlier in the year and the Trump administration’s repeated failure to push through healthcare changes still fresh in the minds of many it is unlikely that tomorrow’s speech will inspire much confidence in the US Dollar.

Meanwhile, Sterling may rally again tomorrow as analysts forecast that tomorrow’s mortgage approval figures will show that the number of home loans approved in July will climb slightly higher after striking a nine-month low in June.