Forex Today: Markets turn risk-averse as Iran and Israel exchange strikes
Here is what you need to know on Monday, June 8:
Safe-haven flows return to markets to start the new week as investors react to news of a renewed escalation in the Middle East conflict. The economic calendar will not feature any high-impact data releases on Monday, allowing market participants to stay focused on geopolitical headlines.
Israel and Iran exchanged strikes for the first time since the ceasefire agreement was reached on April 8.
Iran fired missiles at Israel on Sunday in retaliation for an Israeli attack in Lebanon. Israeli military said that it intercepted the missiles and launched a retaliatory attack, striking military targets in western and central Iran. Iranian state television reported the sound of explosions being heard in Isfahan, Tabriz and Tehran. Early Monday, Israeli military noted that its air force struck several targets at the petrochemical complex in Mahshahr in southwestern Iran, while Iran's Islamic Revolutionary Guard Corps announced that they launched attacks against Israeli air bases Nevatim and Tel Nof as a response to attacks on radar sites within Iran and added that they are "ready for any scenario and for widespread operations on all fronts."
United States (US) President Donald Trump told the Financial Times that Iran’s strikes had not changed his desire to conclude the negotiations with Iran and said that Israeli Prime Minister Benjamin Netanyahu will have no choice but to accept a deal with Iran.
US Dollar Index edged higher in the Asian session on Monday and reached its highest level since early April above 100.00 before retreating slightly. In the meantime, the barrel of West Texas Intermediate (WTI) gains more than 4% on the day and trades near $92.50.
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 New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 1.03% | 0.85% | 0.59% | 1.00% | 1.72% | 2.87% | 1.97% | |
| EUR | -1.03% | -0.20% | -0.46% | -0.03% | 0.67% | 1.84% | 0.93% | |
| GBP | -0.85% | 0.20% | -0.24% | 0.16% | 0.87% | 2.04% | 1.11% | |
| JPY | -0.59% | 0.46% | 0.24% | 0.45% | 1.16% | 2.29% | 1.37% | |
| CAD | -1.00% | 0.03% | -0.16% | -0.45% | 0.69% | 1.83% | 0.94% | |
| AUD | -1.72% | -0.67% | -0.87% | -1.16% | -0.69% | 1.16% | 0.26% | |
| NZD | -2.87% | -1.84% | -2.04% | -2.29% | -1.83% | -1.16% | -0.91% | |
| CHF | -1.97% | -0.93% | -1.11% | -1.37% | -0.94% | -0.26% | 0.91% |
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).
On Friday, the data from the US showed that Nonfarm Payrolls (NFP) rose by 172K in May. This reading followed the 179K increase (revised from 115K) recorded in April and surpassed the market expectation of 85K by a wide margin. Other details of the publication showed that the Unemployment Rate remained unchanged at 4.3%, as anticipated, while the Labor Force Participation Rate held steady at 61.8%. Finally, annual wage inflation, as measured by the change in the Average Hourly Earnings, softened to 3.4% from 3.6% in April, matching analysts' estimates.
The USD gathered strength as the upbeat labor market data allowed markets to continue to price in a hawkish Federal Reserve (Fed) policy outlook. According to the CME FedWatch Tool, there is a nearly 55% probability that the Fed will raise the interest rate by 25 basis points in September.
Gold (XAU/USD) lost more than 3% on Friday and continued to stretch lower early Monday. At the time of press, XAU/USD was trading slightly above $4,300, at its weakest level since March 23.
EUR/USD opened under bearish pressure and came within a touching distance of 1.1500 before recovering above 1.1530 by the early European morning.
GBP/USD stays relatively quiet and fluctuates in a narrow range at around 1.3350 after losing about 0.9% in the previous week.
The Korean Won (KRW) weakened sharply against the USD on Friday and USD/KRW hit its highest level since March 2009 at 1,561.8. Early Monday, South Korea's foreign exchange authorities intervened verbally, saying that they will not tolerate and will strongly respond to excessive volatility compared with economic fundamentals and herd-like behaviour. As of writing, USD/KRW was down about 1.5% on the day at 1,537.8.
The Indonesian Rupiah (IDR) remains under persistent selling pressure and USD/IDR trades at a new all-time high at around 18,200 on Monday. Growing fiscal anxieties, new commodity export policies, and skepticism surrounding the Bank Indonesia’s (BI) operational autonomy continue to weigh on the IDR.
After closing the previous week in positive territory, USD/JPY stays in a consolidation phase above 160.00 on Monday.
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.
