MIDEAST: Saudi-Backed Forces Launch Strikes In Yemen Amid Rift w/UAE
The ongoing conflict in Yemen, which has significantly strained relations between Saudi Arabia and the UAE in recent weeks, continues to escalate. The Southern Transition Council (STC), supposedly backed by the UAE, has confirmed that one of its camps in southern Yemen has been targeted by Saudi airstrikes. Comes amid the Governor of Hadramout governorate, Salem Ahmed Saeed al-Khunbashi, being given powers by the Saudi-backed Presidential Leadership Council (PLC) to take back military sites in the region that have been taken by the STC in a recent military campaign. The PLC said the instructions did not amount to a 'declaration of war'.
- Earlier in the week, Saudi Arabia launched airstrikes on a STC-held port in southern Yemen targeting a UAE vessel that Riyadh claims was carrying weapons and military vehicles for the STC. The UAE then acquiesced to a demand from the Yemeni gov't that it withdraw all of its armed forces from the country.
- Middle East Eye notes that the rivalry between Saudi and UAE-backed proxies could benefit the Iranian-backed Houthis, which control the capital Sanaa and the populous northwestern region. Saudi Arabia has been in an uneasy truce with the Houthis since 2022, and the disunity among the two erstwhile Gulf allies is likely to limit any prospect of the Yemeni gov't being able to reclaim territory from the Houthis any time soon.
- This in turn means the risk of attacks on Red Sea shipping, Israel, or even the UAE or Saudi Arabia from Houthi drones and missiles is likely to remain a consistent threat in the medium-to-long term.
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FOREX: Greenback Tilts Lower amid Risk Optimism/Hasset Chair Expectations
- The risk backdrop remains stable Wednesday, allowing the major indices and crypto markets to edge higher and provide a negative tilt to the US dollar. The greenback tone was also set late last night as President Trump’s nod towards Kevin Hassett potentially becoming the next Fed Chair confirms the dovish bias to market Fed pricing for 2026.
- These dynamics have prompted GBP and the Scandies to outperform on the session. For GBPUSD specifically, spot has edged to a fresh recovery and post-budget high, with momentum building on the better-than-expected PMI print. Prices are now meeting an uptrendline drawn off the Nov13 high on the 15min candle chart - meaning further strength here could trigger more on the follow through. A close back above the 50-day EMA for cable would also be the first since early October. Mirroring the move, EURGBP has firmly rejected the test of 0.88 overnight, erasing the majority of Monday's rally.
- For EURUSD, we are currently testing above key resistance and the bull trigger at 1.1656. The moves come despite the latest Kremlin commentary pouring cold water on the prospects of a peace deal, with prediction markets' odds for a ceasefire by the end of '26 falling below 50%.
- Despite a weaker-than-expected Q3 GDP print, stronger domestic demand growth is likely to keep the RBA in cautious mode, underpinning the firm AUD recovery. Elsewhere, softer-than-expected Swiss CPI figures did little to move the Swiss needle.
- A wide set of US data is scheduled for today, including weekly MBA Mortgage Applications, November ADP, September import / export prices, September IP, and ISM Services.
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