Forex Today: Middle East uncertainty forces markets to remain cautious
Here is what you need to know on Friday, March 27:
In the absence of high-tier macroeconomic data releases, markets remain sensitive to developments surrounding the Middle East crisis. Investors will also pay close attention to comments from Federal Reserve (Fed) policymakers heading into the weekend.
US Dollar Price This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.12% | -0.02% | 0.37% | 0.95% | 1.64% | 0.88% | 1.06% | |
| EUR | -0.12% | -0.14% | 0.28% | 0.84% | 1.50% | 0.79% | 0.94% | |
| GBP | 0.02% | 0.14% | 0.36% | 0.97% | 1.67% | 0.93% | 1.01% | |
| JPY | -0.37% | -0.28% | -0.36% | 0.54% | 1.24% | 0.49% | 0.58% | |
| CAD | -0.95% | -0.84% | -0.97% | -0.54% | 0.70% | -0.05% | 0.09% | |
| AUD | -1.64% | -1.50% | -1.67% | -1.24% | -0.70% | -0.73% | -0.63% | |
| NZD | -0.88% | -0.79% | -0.93% | -0.49% | 0.05% | 0.73% | 0.08% | |
| CHF | -1.06% | -0.94% | -1.01% | -0.58% | -0.09% | 0.63% | -0.08% |
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).
In a post published on Truth Social on Thursday, United States (US) President Donald Trump said that Iran was "begging" them to make a deal. Later in the day, President Trump announced that, as per the Iranian government's request, they will postpone the plan to attack Iran's energy infrastructure for another 10 days to April 6 and reiterated that talks between Washington and Tehran was going "very well." This headline failed to help the market mood improve and Wall Street's main indexes closed deep in negative territory. The S&P 500 lost about 1.75% on the day, while the Nasdaq Composite erased nearly 2.5%.
Citing mediators, the Wall Street Journal (WSJ) reported early Friday that Iran hasn't requested a 10-day pause and that Iran is yet to deliver a final response to the US' 15-point plan.
After posting gains for three consecutive gains, the US Dollar (USD) Index stays in a consolidation phase slightly below 100.00 in the European morning on Friday. In the meantime, US stock index futures trade marginally, while crude Oil prices continue to edge higher, with the barrel of Wednesday Texas Intermediate (WTI) trading above $93.50 and rising about 1% on the day.
Following a two-day rebound, Gold came under renewed bearish pressure on Thursday and lost nearly 3%. XAU/USD attempts another recovery early Friday and trades near $4,450, up about 1.7% on the day.
EUR/USD finds it difficult to stage a rebound early Friday and trades in a narrow channel below 1.1550 in the early European session on Friday.
GBP/USD stays on the back foot and trades below 1.3350 after closing in negative territory for three straight days. The UK's Office for National Statistics reported on Friday that Retail Sales decreased by 0.4% on a monthly basis in February. This reading came in better than the market expectation for a decline of 0.8%.
USD/JPY continues to edge higher toward 160.00 in the European morning on Friday. In its review of the natural rate of interest and the assessment of the degree of monetary accommodation, the Bank of Japan (BoJ) said it is difficult to pin down the level of the natural rate of interest in advance, adding that it is necessary to assess the degree of monetary accommodation in comprehensive manner, carefully examining economic activity, prices, and financial developments.
AUD/USD trades at its lowest level since late January below 0.6900 after losing more than 0.8% on Thursday.
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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