Forex Today: Recession fears continue to dominate markets
Here is what you need to know on Tuesday, March 11:
Growing fears over an economic downturn in the US and its potential activity on the global economic outlook triggered a selloff in major equity indexes at the start of the week. On Tuesday, the US economic calendar will feature NFIB Business Optimism Index for February and JOLTS Job Openings data for January. Meanwhile, investors will keep a close eye on political headlines and the action in stock markets.
On Monday, Wall Street's main indexes opened in negative territory and continued to push lower, as US President Donald Trump acknowledged over the weekend that they will be in a "period of transition," when asked whether his policy changes could potentially cause a recession. The Nasdaq Composite fell 3.8%, the S&P 500 lost 2.7% and the Dow Jones Industrial Average declined 2.08% on the first trading day of the week. In the meantime, the CBOE Volatility Index (VIX), also known as Wall Street's fear gauge, rose about 20% on the day and reached its highest level since early August. In the European morning on Tuesday, US stock index futures trade marginally higher.
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 weakest against the Euro.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -3.63% | -1.61% | -1.56% | -0.56% | -0.91% | -1.35% | -1.89% | |
| EUR | 3.63% | 2.10% | 2.14% | 3.19% | 2.83% | 2.37% | 1.80% | |
| GBP | 1.61% | -2.10% | 0.06% | 1.06% | 0.72% | 0.27% | -0.28% | |
| JPY | 1.56% | -2.14% | -0.06% | 1.00% | 0.65% | 0.19% | -0.35% | |
| CAD | 0.56% | -3.19% | -1.06% | -1.00% | -0.35% | -0.78% | -1.34% | |
| AUD | 0.91% | -2.83% | -0.72% | -0.65% | 0.35% | -0.44% | -1.00% | |
| NZD | 1.35% | -2.37% | -0.27% | -0.19% | 0.78% | 0.44% | -0.55% | |
| CHF | 1.89% | -1.80% | 0.28% | 0.35% | 1.34% | 1.00% | 0.55% |
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 Dollar (USD) Index closed virtually unchanged on Monday as the risk-averse market atmosphere helped the USD stay resilient against its rivals. Falling US Treasury bond yields, however, made it difficult for the USD to gather strength. After losing 2% on Monday, the benchmark 10-year US T-bond yield stays in the red below 4.2% early Tuesday and the USD Index edges lower below 104.00.
EUR/USD struggled to build on the previous week's gains and closed flat on Monday. The pair gains traction in the European morning and trades above 1.0850.
GBP/USD registered small losses on Monday but managed to stabilize near 1.2900 early Tuesday.
The data from Japan showed in the Asian session that the Gross Domestic Product expanded at an annual rate of 2.2% in the fourth quarter, down from the 2.8% growth recorded in the previous quarter. Japan's Economy Minister Ryosei Akazawa said on Tuesday that the Japanese economy is expected to recover moderately, though policymakers remain cautious about external risks. After losing about 0.5% on Monday, USD/JPY trades marginally lower on the day near 147.00 on Tuesday.
Gold failed to benefit from falling US T-bond yields and fell more than 0.5% on Monday. XAU/USD stays in a consolidation phase at around $2,900 in the European morning.
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.
