Iran acknowledges receiving US ceasefire proposal through Pakistan - Reuters

Sagar Dua FXStreet

Iran has confirmed that it has received the proposal of a ceasefire by the United States (US) through Pakistan and has stated that it is being reviewed, according to a Senior Iranian official, Reuters reports. However, it has clarified that it will not accept any proposal under pressure or deadlines.

Remarks

Tehran has received Pakistan's proposal, it is being reviewed

Will not accept deadlines or pressure to make a decision

Iran will not reopen Strait of Hormuz in exchange for a 'temporary ceasefire'

Believes that US lacks readiness for a permanent ceasefire

Market reaction

The US Dollar (USD) appears to have reacted negatively to Iran's acknowledgement to US ceasefire proposal. As of writing, the US Dollar Index (DXY) trades 0.2% lower to near 100.00.

Impact on WTI Oil Price

WTI oil price has also faced selling pressure after Iran confirmed that it is reviewing the US ceasefire proposal. During the press time, WTI Oil price is down 1.6% to near $102.00.

Risk sentiment FAQs

What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?

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.

What are the key assets to track to understand risk sentiment dynamics?

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.

Which currencies strengthen when sentiment is "risk-on"?

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.

Which currencies strengthen when sentiment is "risk-off"?

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

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

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