Forex Today: Safe-haven demand returns as US-Iran talks collapse
Here is what you need to know on Monday, April 13:
Financial markets turn risk-averse at the beginning of the week after Iran and the United States (US) failed to make any progress in this weekend's negotiations. The only data featured in the US economic calendar will be Existing Home Sales for March.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.30% | 0.35% | 0.26% | 0.09% | 0.21% | 0.08% | 0.13% | |
| EUR | -0.30% | 0.02% | -0.06% | -0.21% | -0.11% | -0.23% | -0.13% | |
| GBP | -0.35% | -0.02% | -0.09% | -0.26% | -0.14% | -0.26% | -0.20% | |
| JPY | -0.26% | 0.06% | 0.09% | -0.21% | -0.08% | -0.22% | -0.08% | |
| CAD | -0.09% | 0.21% | 0.26% | 0.21% | 0.16% | 0.00% | 0.06% | |
| AUD | -0.21% | 0.11% | 0.14% | 0.08% | -0.16% | -0.12% | 0.01% | |
| NZD | -0.08% | 0.23% | 0.26% | 0.22% | -0.00% | 0.12% | 0.10% | |
| CHF | -0.13% | 0.13% | 0.20% | 0.08% | -0.06% | -0.01% | -0.10% |
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 explained that they had "very friendly" talks and that Iran agreed to "just above every point" the US needed. However, Iran's refusal to commit to giving up its nuclear ambitions caused negotiations to stall.
While speaking to reporters on Sunday, President Trump noted that the two-week ceasefire between the US and Iran is holding well, despite failed talks. Meanwhile, the US military said it will enforce a blockade on all naval traffic in and out of Iranian ports in the Strait of Hormuz from 10:00 EST Monday. According to the Wall Street Journal (WSJ), Trump and his advisers are considering resuming military strikes in addition to the blockade to force Iran to accept the US' terms to end the conflict.
Crude oil prices opened with a large bullish gap. At the time of press, the barrel of West Texas Intermediate (WTI) was trading near $96, rising about 6% on a daily basis. Reflecting the risk-averse market atmosphere, US stock index futures lose between 0.6% and 0.7% on the day, while the US Dollar (USD) Index gains more than 0.3% on the day near 99.00. The data from the US showed on Friday that annual inflation, as measured by the change in the Consumer Price Index (CPI), climbed to 3.3% in March. This print followed 2.4% in February and came in line with market expectations. On a monthly basis, the CPI rose 0.9%, as forecast, after the 0.3% increase recorded in February.
After posting gains in the previous week, Gold declined sharply in the opening hours and touched a six-day low below $4,650. XAU/USD rebounds in the European morning and trades above $4,700.
EUR/USD started the week deep in the red but managed to find support. The pair edges higher toward 1.1700 in the early European session, still down about 0.3% on the day.
GBP/USD gained nearly 2% in the previous week but opened with a bearish gap. At the time of press, the pair was trading slightly above 1.3400, losing 0.35% on a daily basis.
USD/JPY continues to push higher and trades above 159.50 after posting gains for two consecutive days. Bank of Japan (BoJ) Governor Kazuo Ueda said in his prepared remarks in a speech during the European trading session on Monday that the economic recovery is modest in the wake of the war in the Middle East. Ueda reiterated confidence that the underlying inflation is gradually moving towards the central bank’s target.
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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