Forex Today: Mood improves as US and Iran renew push for diplomatic solution
Here is what you need to know on Monday, August 3:
Market mood improves at the beginning of the new week as the United States (US) and Iran revive efforts for a diplomatic solution to the conflict. In the second half of the day, the Institute for Supply Management's (ISM) Manufacturing Purchasing Managers' Index (PMI) data for July will be featured in the US economic calendar.
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 Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -1.13% | -0.93% | -4.20% | -0.35% | -0.39% | -1.23% | -0.84% | |
| EUR | 1.13% | 0.19% | -3.11% | 0.78% | 0.76% | -0.10% | 0.29% | |
| GBP | 0.93% | -0.19% | -3.40% | 0.60% | 0.57% | -0.28% | 0.10% | |
| JPY | 4.20% | 3.11% | 3.40% | 4.00% | 3.96% | 3.09% | 3.40% | |
| CAD | 0.35% | -0.78% | -0.60% | -4.00% | -0.07% | -0.88% | -0.50% | |
| AUD | 0.39% | -0.76% | -0.57% | -3.96% | 0.07% | -0.84% | -0.46% | |
| NZD | 1.23% | 0.10% | 0.28% | -3.09% | 0.88% | 0.84% | 0.38% | |
| CHF | 0.84% | -0.29% | -0.10% | -3.40% | 0.50% | 0.46% | -0.38% |
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).
US President Donald Trump announced over the weekend that he held off a planned "massive attack" and said a day later that negotiations with Iran will resume on Monday. Iranian President Masoud Pezeshkian urged the US to “remain committed” to the Memorandum of Understanding (MoU) signed in June.
Crude Oil prices opened with a huge bearish gap on this development and the barrel of West Texas Intermediate was last seen trading at around $78, losing more than 8% on the day. Reflecting the upbeat market mood, the US Dollar (USD) Index stays below 100.00 after losing more than 1.5% in the previous week and US stock index futures are up between 0.5% and 0.8% on the day.
Brent retreats as US-Iran talks resume after aborted strike
Analysts at Danske Bank highlight a sharp pullback in Brent following signs of de-escalation in the US-Iran confrontation. They note that in the context of the US-Iran war, “Trump confirmed on Sunday that negotiations with Iran would resume on Monday after calling off what he described as the ‘biggest attack since World War II’ at the request of Gulf allies.” The US President “declined to set a deadline or disclose the location and participants,” but the prospect of renewed talks has eased immediate geopolitical risk.
According to Danske Bank, “oil prices fell sharply on signs of de-escalation, with Brent crude trading just below USD84/bbl this morning after closing around USD90/bbl on Friday.”
Meanwhile, recent comments from Federal Reserve (Fed) officials failed to support the USD.
Dallas Fed President Lorie Logan delivered a distinctly more hawkish message on Friday, with an FXS Speechtracker score of 8.7/10, notably above the 6.7/10 historical average and signaling a stronger tightening bias relative to the established baseline. The emphasis that “risks to inflation are to the upside,” that monetary policy is “not restraining” the economy, and that inflation is “not on course” to 2%—combined with a stated preference for a quarter-point rate increase—underscored concern that without additional policy restraint, inflation will remain above target and may ultimately require sharper action.
Following the previous week's sharp decline, USD/JPY came under heavy bearish pressure in the Asian session on Monday and touched its lowest level since early May below 155.50. The pair staged a rebound afterward and erased a large portion of its losses. At the time of press, USD/JPY was trading near 156.80, losing about 0.4% on the day.
Japan's Finance Minister Satsuki Katayama said on Monday that she has no comment on whether there was foreign exchange (FX) intervention today, Reuters reported.
Earlier in the day, Katayama stated that Japanese authorities conducted coordinated Yen-buying intervention with the US on Friday, adding that officials will not hesitate to carry out more FX intervention with Washington.
EUR/USD struggles to preserve its bullish momentum after rising in the Asian session and trades virtually unchanged at around 1.1520 in the European morning on Monday.
GBP/USD corrects lower following a three-day rally and trades slightly above 1.3450.
Gold finds it difficult to set a near-term direction and extends its sideways grind above $4,000 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.
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