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Forex Today: Flight-to-safety dominates markets as geopolitical tensions escalate
Here is what you need to know on Monday, August 5:
Safe-haven flows dominate financial markets at the beginning of the week as investors react to the latest news surrounding the Israel-Iran conflict. S&P will release revisions to July PMI data for the Euro area, Germany and the UK on Monday. Later in the day, the ISM Services PMI report for July will be featured in the US economic docket. Meanwhile, market participants will keep a close eye on geopolitical developments.
US Secretary of State Tony Blinken has reportedly told his counterparts from the G7 countries over the weekend that Iran and Lebanese group Hezbollah could attack Israel as early as Monday. The White House announced that US President Joe Biden will meet with his national security team on Monday to discuss “developments in the Middle East.” In the meantime, The Times of Israel reported that Israel could launch a preemptive attack to deter Iran if it uncovered "airtight evidence that Tehran was preparing to mount an attack."
Growing fears over a deepening crisis in the Middle East force market participants to seek refuge early Monday, causing risk-sensitive assets to suffer heavy losses. At the time of press, US stock index futures were down between 1.7% and 4.6%. The US Dollar (USD) struggles to benefit from risk-off flows following the disappointing July jobs report. At the time of press, the USD Index was down 0.6% on the day at 102.63. The benchmark 10-year US Treasury bond yield continues to push lower and stays below 3.8% after losing nearly 10% in the previous week.
US Dollar PRICE Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.41% | 0.05% | -2.43% | 0.03% | 1.14% | 0.54% | -0.85% | |
| EUR | 0.41% | 0.38% | -2.15% | 0.32% | 1.57% | 0.85% | -0.55% | |
| GBP | -0.05% | -0.38% | -2.47% | -0.04% | 1.18% | 0.47% | -0.92% | |
| JPY | 2.43% | 2.15% | 2.47% | 2.52% | 3.57% | 3.02% | 1.62% | |
| CAD | -0.03% | -0.32% | 0.04% | -2.52% | 1.14% | 0.51% | -1.05% | |
| AUD | -1.14% | -1.57% | -1.18% | -3.57% | -1.14% | -0.71% | -2.06% | |
| NZD | -0.54% | -0.85% | -0.47% | -3.02% | -0.51% | 0.71% | -1.38% | |
| CHF | 0.85% | 0.55% | 0.92% | -1.62% | 1.05% | 2.06% | 1.38% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
The Japanese Yen seems to be shining as the go-to-safe-haven asset at the start of the week. At the time of press, USD/JPY was down 2.4% on the day, testing 143.00. Reflecting the broad-based JPY strength, EUR/JPY loses 2% at 156.80 and GBP/JPY falls 2.3% at 183.24.
The Swiss Franc is another traditional safe-haven currency that's gathering strength on Monday. USD/CHF was last seen losing nearly 1% on the day at around 0.8500, trading at its weakest level since the first week of January.
EUR/USD gained more than 1% on Friday after the weak labor market data from the US triggered a USD selloff. The pair preserves its bullish momentum early Monday and was last seen trading at its highest level since early March above 1.0950.
Gold rose more than 2% in the previous week and registered a record-high weekly close above $2,440. XAU/USD stays relatively quiet early Monday and trades near Friday's closing level.
AUD/USD came under strong bearish pressure in the Asian session and touched a fresh 2024-low at 0.6348. Although the pair managed to recover toward 0.6450, it's still down over 1% on the day. The Reserve Bank of Australia (RBA) will announce monetary policy decisions on Tuesday.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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