Forex Today: Markets stabilize despite lack of clarity over US-Iran truce deal
Here is what you need to know on Wednesday, May 27:
Major currency pairs fluctuate in familiar ranges midweek as investors refrain from taking large positions, while waiting for clarity over a potential Memorandum of Understanding (MOU) between the United States (US) and Iran. In the second half of the day, the US economic calendar will feature ADP Employment Change 4-week Average data and several Federal Reserve (Fed) policymakers will be delivering speeches.
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 | -0.01% | 0.08% | 0.30% | 0.13% | 0.30% | 0.11% | 0.17% | |
| EUR | 0.01% | 0.12% | 0.35% | 0.14% | 0.27% | 0.14% | 0.17% | |
| GBP | -0.08% | -0.12% | 0.00% | 0.02% | 0.15% | 0.02% | 0.09% | |
| JPY | -0.30% | -0.35% | 0.00% | -0.19% | -0.03% | -0.20% | -0.15% | |
| CAD | -0.13% | -0.14% | -0.02% | 0.19% | 0.15% | -0.02% | 0.07% | |
| AUD | -0.30% | -0.27% | -0.15% | 0.03% | -0.15% | -0.13% | -0.11% | |
| NZD | -0.11% | -0.14% | -0.02% | 0.20% | 0.02% | 0.13% | 0.07% | |
| CHF | -0.17% | -0.17% | -0.09% | 0.15% | -0.07% | 0.11% | -0.07% |
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).
After the US carried out what it called "self-defense strikes" on Iranian missile sites and mine-laying vessels, Iran's Islamic Revolutionary Guard Corps (IRGC) threatened to retaliate. The IRGC also called the US' action a violation of ceasefire and noted that it downed a US drone and fired at a fighter jet. Still, there is no official confirmation of a cancellation of the ceasefire and the US and Iran are reportedly still working toward finalizing the MOU, specifically trying to resolve the disputes over language regarding Iran's nuclear program and sanctions relief.
The US Dollar (USD) Index moves sideways slightly above 99.00 after posting marginal gains on Tuesday. In the meantime, US stock index futures are up about 0.2% in the European morning on Wednesday.
The Reserve Bank of New Zealand (RBNZ) announced early Wednesday that it left the policy rate unchanged at 2.25%, as expected. In the policy statement, the RBNZ noted that the Middle East conflict is increasing near-term inflation and weakening the economic activity. Additionally, the interest rate projection for June 2027 got revised higher to 3.07% from 2.62%. In the post meeting press conference, RBNZ Governor Anna Breman acknowledged that rate hikes are likely at coming meetings, depending on data. NZD/USD gathered bullish momentum following the RBNZ event and was last seen trading at 0.5870, rising about 0.6% on the day.
The data from Australia showed earlier in the day that annual inflation, as measured by the change in the Consumer Price Index (CPI), declined to 4.2% in April from 4.6% in March. This print came in below the market expectation of 4.4%. AUD/USD stays under bearish pressure following the soft inflation print and was last seen losing 0.4% on the day near 0.7140.
Gold continues to edge lower after losing more than 1% on Tuesday and trades below $4,500 in the European session on Wednesday.
EUR/USD moves sideways slightly below 1.1650 after posting marginal losses on Tuesday.
USD/JPY trades flat on the day at around 159.30 after rising 0.25% on Tuesday.
GBP/USD fell more than 4% on Tuesday and erased Monday's gains. The pair struggles to gain traction on Wednesday and trades below 1.3450.
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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