Forex Today: April begins with hopes of an end to Middle East conflict
Here is what you need to know on Wednesday, April 1:
Risk flows dominate the action in financial markets as investors look forward to a de-escalation of the conflict in the Middle East. In the second half of the day, private sector employment data and the Institute for Supply Management's (ISM) Manufacturing Purchasing Managers' Index (PMI) report for March will be featured in the US economic calendar, alongside the Retail Sales figures for February.
US Dollar Price This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.72% | -0.15% | -1.14% | 0.15% | -1.00% | -0.23% | -0.25% | |
| EUR | 0.72% | 0.57% | -0.48% | 0.87% | -0.29% | 0.50% | 0.48% | |
| GBP | 0.15% | -0.57% | -0.99% | 0.30% | -0.86% | -0.08% | -0.14% | |
| JPY | 1.14% | 0.48% | 0.99% | 1.34% | 0.20% | 0.97% | 0.85% | |
| CAD | -0.15% | -0.87% | -0.30% | -1.34% | -1.17% | -0.37% | -0.43% | |
| AUD | 1.00% | 0.29% | 0.86% | -0.20% | 1.17% | 0.79% | 0.73% | |
| NZD | 0.23% | -0.50% | 0.08% | -0.97% | 0.37% | -0.79% | -0.06% | |
| CHF | 0.25% | -0.48% | 0.14% | -0.85% | 0.43% | -0.73% | 0.06% |
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).
United States (US) President Donald Trump told reporters in the White House late Tuesday that the US will be leaving Iran within two or three weeks. Trump added that Iran doesn't have to make a deal for the US to end the war but noted that a deal could still be made before they leave. Early Wednesday, White House spokeswoman Karoline Leavitt said that Trump will give an address to the nation to provide an important update on Iran. The announcement is scheduled to be made at 01:00 GMT on Thursday.
Meanwhile, Iranian President Masoud Pezeshkian said that they have the "necessary will" to end the conflict but noted that they are seeking guarantess that the conflict will not be repeated.
Wall Street benefited from the improving market mood on Tuesday, with the Nasdaq Composite Index rising nearly 3.5% and the S&P 500 Index gaining about 3% on the day. Early Wednesday, US stock index futures are up between 0.7% and 1%, while the US Dollar (USD) Index continues to push lower and fluctuates near 99.50 after losing about 0.6% on Tuesday. Crude Oil prices also remain under bearish pressure and the barrel of West Texas Intermediate (WTI) is already down about 3.5% at around $94, following Tuesday's 4.4% drop.
EUR/USD preserves its bullish momentum and advances toward 1.1600 after rising 0.8% on Tuesday. The data from the Eurozone showed on Tuesday that the annual inflation, as measured by the change in the Harmonized Index of Consumer Price (HICP), rose to 2.5% in March's flash estimate from 1.9% in February.
GBP/USD rose more than 0.3% on Tuesday and snapped a five-day losing streak. The pair extends its rebound in the European session on Wednesday and closes in on 1.3300.
Gold gained about 3.5% on Tuesday and continued to push higher in the Asian session on Wednesday. At the time of press, XAU/USD was trading above $4,700, up more than 1% on the day.
USD/JPY stays under bearish pressure and trades below 158.50 after posting losses on Monday and 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.
(This story was corrected at 08:37 GMT to note in the first paragraph that Retail Sales data from the US will be for February, not April).
Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
