Forex Today: Gold drops as risk flows dominate markets to start week
Here is what you need to know on Monday, May 12:
News of US and China making substantial progress in trade talks this past weekend lifts the risk sentiment on Monday. In the absence of high-tier macroeconomic data releases, investors will scrutinize the headlines surrounding the US-China relations and pay close attention to comments from central bankers.
US Dollar PRICE Last 7 days
The table below shows the percentage change of US Dollar (USD) against listed major currencies last 7 days. US Dollar was the strongest against the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.95% | -0.24% | 0.91% | 0.87% | 0.27% | 0.32% | 0.99% | |
| EUR | -0.95% | -0.90% | 0.25% | 0.19% | -0.40% | -0.35% | 0.31% | |
| GBP | 0.24% | 0.90% | 0.91% | 1.08% | 0.50% | 0.55% | 1.22% | |
| JPY | -0.91% | -0.25% | -0.91% | -0.05% | -0.64% | -0.52% | 0.18% | |
| CAD | -0.87% | -0.19% | -1.08% | 0.05% | -0.89% | -0.54% | 0.12% | |
| AUD | -0.27% | 0.40% | -0.50% | 0.64% | 0.89% | 0.05% | 0.71% | |
| NZD | -0.32% | 0.35% | -0.55% | 0.52% | 0.54% | -0.05% | 0.66% | |
| CHF | -0.99% | -0.31% | -1.22% | -0.18% | -0.12% | -0.71% | -0.66% |
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).
Following the first round of official talks between representatives from China and the US in Switzerland, US Treasury Secretary Scott Bessent said that they had "productive and constructive" discussions, while China's Vice Premier He Lifeng described the talks as "in-depth" and candid. Bessent is expected to share more details at 07:00 GMT on Monday.
Reflecting the improving market mood, US stock index futures were last seen rising between 1% and 2%. In the meantime, the US Dollar Index stays in positive territory above 100.50 after ending the third consecutive week marginally higher. On Tuesday, the US Bureau of Labor Statistics will publish Consumer Price Index (CPI) data for April.
Gold remains under bearish pressure early Monday and trades at a fresh weekly low below $3,300.
EUR/USD struggles to gain traction and stays in negative territory below 1.1250 to begin the European session.
After starting the week with a small bullish gap, USD/JPY continues to stretch higher and trades at its strongest level in a month near 146.00.
GBP/USD stays relatively quiet on Monday and fluctuates in a narrow channel at around 1.3300. The UK's Office for National Statistics will release April employment data on Tuesday.
Despite the renewed USD strength, AUD/USD holds its ground and clings to modest daily gains above 0.6400 on Monday.
USD/CAD stays in a consolidation phase above 1.3900 after rising nearly 1% in the previous week. The data from Canada showed on Friday that the Unemployment Rate rose to 6.9% in April from 6.7% 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
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.
