G7 finance leaders warn of growing economic risks from the Middle East war
Finance ministers from the Group of Seven (G7) on Friday emphasized the urgent need to limit the economic repercussions of an ongoing Middle East conflict, highlighting a commitment to pursuing enduring peace.
Key quotes
G7 finance ministers concluded unanimously it was urgent to limit cost for global economy of an enduring Middle East conflict statement.
G7 members are particularly vigilant regarding the direct and indirect effects on the most vulnerable states: statement.
G7 finance ministers and governors reaffirm their support for Ukraine.
G7 finance ministers discussed the imperative to maintain pressure on Russia so that the Middle East crisis does not benefit its war effort.
G7 finance ministers discussed addressing Ukraine's energy needs to prepare for upcoming winter.
G7 finance ministers discussed active contribution toward repair of Chernobyl nuclear power plant confinement arch.
G7 finance ministers discussed implementation of Ukraine reforms under IMF program.
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
Lallalit Srijandorn
FXStreet
Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.
