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Forex Today: Cautious start to week as Middle East tensions re-escalate

Here is what you need to know on Monday, April 20:

Markets adopt a cautious stance to start the week following a fresh escalation of the tensions in the Middle East. Monday's economic calendar will feature March inflation data from Canada and the Bank of Canada (BoC) will publish its Business Outlook Survey. Nevertheless, investors will remain focused on headlines surrounding the US-Iran war.

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 Australian Dollar.

USDEURGBPJPYCADAUDNZDCHF
USD0.06%0.11%0.24%-0.00%0.32%0.29%0.10%
EUR-0.06%0.04%0.11%-0.08%0.25%0.24%0.02%
GBP-0.11%-0.04%0.09%-0.10%0.21%0.19%-0.03%
JPY-0.24%-0.11%-0.09%-0.18%0.12%0.05%-0.11%
CAD0.00%0.08%0.10%0.18%0.31%0.25%0.07%
AUD-0.32%-0.25%-0.21%-0.12%-0.31%-0.03%-0.23%
NZD-0.29%-0.24%-0.19%-0.05%-0.25%0.03%-0.19%
CHF-0.10%-0.02%0.03%0.11%-0.07%0.23%0.19%

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).

Risk flows dominated the financial markets in the early American session on Friday after Abbas Araghchi, the foreign minister of Iran, announced that, following the ceasefire in Lebanon, passage of all commercial vessels through the Strait of Hormuz is declared completely open during the ceasefire period. However, the United States (US) said that the blockade will remain in place. In response, Iran closed the strait again on Saturday and said that any vessels approaching the region will be attacked. On Sunday, US President Donald Trump again threated to strike Iranian power plants and bridges if they fail to reach an agreement at the end of the temporary ceasefire period this Wednesday. Additionally, the US has seized an Iranian cargo ship attempting to get past the US' blockade.

US Vice President JD Vance and top US officials will be in Pakistan for the second of talks on Monday. Reporting on the matter, Iran's Islamic Republic News Agency (IRNA) said that Tehran authorities refuse to sit again with White House representatives amid their "unrealistic expectations," among other things. Additionally, Iran's foreign ministry spokesperson echoed the same sentiment on Monday, saying that there is no plan for a second reound of negotiations with the US.

In the European session, US stock index futures lose between 0.6% and 0.7%. The US Dollar (USD) Index clings to small gains near 98.30, while the barrel of West Texas Intermediate (WTI) trades near $87.50, rising more than 4% on the day.

EUR/USD recovers slightly and trades flat on the day near 1.1760 after opening with a bearish gap.

Gold (XAU/USD) dropped below $4,750 at the weekly opening but managed to erase a portion of its losses. At the time of press, XAU/USD was trading near $4,800, down more than 0.5% on a daily basis.

GBP/USD holds steady above 1.3500 after having touched a weekly low of 1.3475 in the early Asian session.

USD/JPY trades marginally higher on the day near 159.00 after having lost nearly 0.5% in the previous week.

USD/CAD trades in a narrow range near 1.3700 in the European morning on Monday. The Consumer Price Index in Canada is forecast to rise 1.1% on a monthly basis in March.

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.

Author

Eren Sengezer

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.

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