Forex Today: Cautious start to week as markets assess latest on US-Iran conflict
Here is what you need to know on Monday, June 29:
Financial markets adopt a cautious stance at the beginning of the week as investors evaluate the latest developments surrounding the conflict between the United States (US) and Iran. The European economic calendar will feature business and consumer sentiment data for June. Later in the day, European Central Bank (ECB) President Christine Lagarde will deliver an intorudctory speech at ECB Forum on Central Banking.
The US and Iran exchanged fire near the Strait of Hormuz over the weekend. Iran's Islamic Revolutionary Guard Corps (IRGC) said it targeted US military sites in neighboring countries, including Kuwait and Bahrain, after the US struck Iranian sites. Meanwhile, Iran demanded a full withdrawal of Israeli Forces from Lebanon as part of a final agreement with the US. A US official said on Sunday that the US and Iran will stand down on strikes and allow vessels to move freely. The official further noted that technical talks with Iran are set to conntinue on all areas of the Memorandum of Understanding. According to Axios, sides will meet in Doha on Tuesday for the next round of negotiations.
After closing the previous week in positive territory, the US Dollar (USD) Index holds steady above 101.00 in the European session on Monday, while US stock index futures cling to moderate gains.
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 Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.50% | -0.24% | 0.28% | 0.07% | 1.55% | 1.37% | 0.17% | |
| EUR | -0.50% | -0.73% | -0.17% | -0.38% | 1.10% | 0.82% | -0.32% | |
| GBP | 0.24% | 0.73% | 0.32% | 0.31% | 1.78% | 1.55% | 0.39% | |
| JPY | -0.28% | 0.17% | -0.32% | -0.26% | 1.24% | 1.05% | -0.18% | |
| CAD | -0.07% | 0.38% | -0.31% | 0.26% | 1.49% | 1.32% | 0.05% | |
| AUD | -1.55% | -1.10% | -1.78% | -1.24% | -1.49% | -0.21% | -1.37% | |
| NZD | -1.37% | -0.82% | -1.55% | -1.05% | -1.32% | 0.21% | -1.16% | |
| CHF | -0.17% | 0.32% | -0.39% | 0.18% | -0.05% | 1.37% | 1.16% |
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).
Reserve Bank of Australia (RBA) Assistant Governor Chris Kent said during a review of alternative monetary policy tools that the central bank will be better prepared to respond to the next crisis it faces. "The cash rate target remains our primary and preferred instrument," Kent added. These comments failed to trigger a noticeable market reaction and AUD/USD was last seen trading little changed on the day at around 0.6900.
EUR/USD trades marginally higher on the day near 1.1400 in the European morning on Monday.
GBP/USD recovers modestly to start the week and holds above 1.3200. The Bank of England will publish Consumer Credit data for May later in the session.
Gold struggles to extend its recovery and retreats toward $4,050 after posting two consecutive days of gains to end the previous week.
USD/JPY trades in a tight channel at around 161.80 in the European morning on Monday. The data from Japan showed earlier in the day that Retail Trade expanded by 5.3% on a yearly basis in May, surpassing the market expectation of 3.2%.
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.
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