The US army has told Iraq in an official letter that it is preparing to "move out", according to AFP News Agency. The growing calls for the departure of roughly 5,000 US troops may prove impossible to ignore.

This news comes following Iraq’s Parliament calling for the expulsion of US troops from the country on Sunday in reaction to the American drone attack that killed a top Iranian general. The news is in stark contrast to US Secretary of State Mike Pompeo's dismissal of the Iraqi Parliament’s vote Sunday.

“We are confident that the Iraqi people want the United States to continue to be there to fight the counterterror campaign. And we’ll continue to do all the things we need to do to keep America safe," Pompeo said on “Fox News Sunday, “We’ll have to take a look at what we do when the Iraqi leadership and government makes a decision,” he said. “But the American people should know we’ll make the right decision.”

There are, however, concerns that a pullout of the estimated 5,200 U.S. troops could cripple the fight against ISIS and allow its resurgence. It is unclear as to whether Trump will be now retracting his threats of sanctions on Iraq should US troops be expelled from the country. "We will charge them sanctions like they've never seen before ever," Trump said aboard Air Force One, according to a pool report. "It'll make Iranian sanctions look somewhat tame." Trump essentially wants to be paid back for the costs of being there and leaving. "We have a very extraordinarily expensive airbase that's there. It cost billions of dollars to build. Long before my time. We're not leaving unless they pay us back for it," Trump said.

FX implications

Risk-off remains the preferred approach to the FX space while markets sit back and wait to see whether Iran and proxies in Iraq (such as the Shia militias) will follow through with their retaliation threats.