Forex Today: Markets cling to cautious stance as Strait of Hormuz tensions heat up
Here is what you need to know on Monday, May 4:
Financial markets start the week on a cautious note as investors assess the latest developments in the Strait of Hormuz. The European economic calendar will feature Sentix Investor Confidence data for May. Later in the day, March Factory Orders data from the US will be watched closely by market participants, who will also be scrutinizing comments from Federal Reserve (Fed) policymakers.
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.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.03% | 0.04% | -0.06% | 0.06% | 0.10% | -0.08% | -0.00% | |
| EUR | 0.03% | 0.03% | -0.02% | 0.10% | 0.14% | -0.04% | 0.01% | |
| GBP | -0.04% | -0.03% | -0.06% | 0.07% | 0.10% | -0.10% | -0.00% | |
| JPY | 0.06% | 0.02% | 0.06% | 0.09% | 0.10% | -0.07% | -0.01% | |
| CAD | -0.06% | -0.10% | -0.07% | -0.09% | 0.02% | -0.17% | -0.07% | |
| AUD | -0.10% | -0.14% | -0.10% | -0.10% | -0.02% | -0.21% | -0.12% | |
| NZD | 0.08% | 0.04% | 0.10% | 0.07% | 0.17% | 0.21% | 0.08% | |
| CHF | 0.00% | -0.01% | 0.00% | 0.00% | 0.07% | 0.12% | -0.08% |
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 US military announced that it will start guiding neutral ships through the Strait of Hormuz. US President Donald Trump said those ships are "victims of the circumstance" and warned that if this humanitarian process if interfered with, Iran will be "dealt with forcefully." On the other hand, Iran's military said that they will attack US forces if they attempt to enter or approach the Strait of Hormuz, noting that this would be regarded as a violation of the ceasefire.
Meanwhile, the US has reportedly responded to Iran's latest proposal, which included a 14-point peace plan. According to Israel's Kan News, the proposal is unacceptable to Trump.
The US Dollar (USD) Index holds steady above 98.00 in the European morning on Monday after posting moderate losses in the previous week. In the meantime, US stock index futures trade mixed, reflecting the sour market mood.
USD/JPY lost about 1.5% in the previous week as the Japanese Yen gathered strength on reported foreign exchange market intervention by Japan. Following a sharp decline in the early Asian trading hours on Monday, USD/JPY staged a rebound and was last seen trading marginally lower on the day, slightly below 157.00.
After advancing to 1.1750 at the weekly opening, EUR/USD lost its traction and retreated to the 1.1730 region by the European morning.
Gold (XAU/USD) lost about 2% and registered losses for the second consecutive time last week. XAU/USD struggles to stage a rebound on Monday and trades in negative territory below $4,600.
GBP/USD touched its highest level since mid-February above 1.3650 on Friday but reversed its direction in the American session to end the day in the red. The pair stays relatively quiet in the European morning on Monday and fluctuates below 1.3600.
AUD/USD gained about 0.8% in the previous week before entering a consolidation phase at around 0.7200 on Monday. In the early Asian session on Tuesday, the Reserve Bank of Australia (RBA) will announce monetary policy decisions. Markets expect the RBA to raise its policy rate to 4.35% from 4.1%.
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.
