Safe-haven flows dominate global markets after US and Israel attack on Iran
Markets turn risk-averse and safe-haven flows dominate the action at the beginning of the week as investors react to escalating geopolitical tensions in the Middle East.
Iran has retaliated and targeted US assets across the Gulf after the US and Israeli joint strikes killed Iranian Supreme Leader Ayatollah Ali Khamenei and up to 40 top Iranian officials over the weekend.
Hezbollah also announced that it launched strikes on Israeli missile defense sites in response to the killing of the Supreme Leader. According to NBC News, three US service members have been killed in action. Meanwhile, BBC News reported that Iranian strikes around the region continue early Monday, with explosions reported in Bahrain and Dubai, and smoke seen near the US embassy in Kuwait. "On Sunday, an Iranian missile strike killed nine people in the Israeli city of Beit Shemesh," the outlet noted.
Gold capitalizes on safe-haven demand and trades at its highest level since late January near $5,400, rising more than 2% on the day. US stock index futures trade deep in negative territory in the European session, losing between 1.2% and 1.6%.
The US Dollar (USD) gathers strength against its major rivals on Monday, with the USD Index rising more than 0.5% on the day.
The Swiss Franc (CHF) also benefited from risk-aversion and started the week on a bullish note. The Swiss National Bank (SNB) said during European trading hours that it could intervene in the foreign exchange market in an attempt to ease excessive appreciation of the CHF.
Rabobank’s Jane Foley argues that despite questions over the Dollar’s safe haven role, liquidity and global usage should preserve its crisis function.
"The CHF retains strong text-book style safe haven characteristics given its strong budget and current account surpluses and the reality that in a crisis, liquidity trumps returns," Foley adds. "The JPY may also perform relative well vs. several G10 currencies given its current account position and the tendency for domestic savers to repatriate in times of extreme stress."
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.69% | 0.69% | 0.52% | 0.08% | 0.42% | 0.66% | 0.43% | |
| EUR | -0.69% | -0.00% | -0.18% | -0.60% | -0.26% | -0.02% | -0.25% | |
| GBP | -0.69% | 0.00% | -0.21% | -0.60% | -0.26% | -0.02% | -0.25% | |
| JPY | -0.52% | 0.18% | 0.21% | -0.42% | -0.08% | 0.16% | -0.07% | |
| CAD | -0.08% | 0.60% | 0.60% | 0.42% | 0.34% | 0.57% | 0.35% | |
| AUD | -0.42% | 0.26% | 0.26% | 0.08% | -0.34% | 0.24% | 0.01% | |
| NZD | -0.66% | 0.02% | 0.02% | -0.16% | -0.57% | -0.24% | -0.23% | |
| CHF | -0.43% | 0.25% | 0.25% | 0.07% | -0.35% | -0.01% | 0.23% |
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).
This section below was published on February 28 at 08:56 GMT to cover the news of the United States and Israel's joint attack on Iran.
Early Saturday, United States (US) President Donald Trump announced that the US had begun “major combat operations” in Iran, following Israel’s pre-emptive missile attacks against Tehran.
The US bombed multiple locations in Tehran, Iran’s Tasnim news agency reported.
Israel’s Prime Minister Benjamin Netanyahu said that the attacks on Iran were aimed to remove an “existential threat”.
Meanwhile, the Israeli army confirmed that missiles were launched from Iran, prompting sirens in several areas of the country. The Israel Defence Force (IDF) further noted that retaliatory strikes have been launched by Iran.
Israel has declared a state of emergency and advised its citizens to stay close to shelters.
Market implications
A big risk-off wave is expected to rattle global markets as a new week kicks off on Monday, with intense flight to safety likely to set Gold on fire, while Oil prices are also seen storming through the roof.
Safe-haven currencies such as the US Dollar (USD), Japanese Yen (JPY) and the Swiss Franc (CHF) will be the most sought after, while global equity markets could come under tremendous selling pressure.
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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FXStreet Team
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