Forex Today: US Dollar retreats on US-Iran peace hopes
Here is what you need to know on Thursday, May 7:
Market mood continues to improve early Thursday as investors grow increasingly optimistic about the United States (US) and Iran finalizind a truce deal. In the second half of the day, the US economic calendar will feature weekly Initial Jobless Claims data and several Federal Reserve (Fed) policymakers will be delivering speeches.
Reports claiming that the US and Iran were closing in on a final agreement triggered a risk rally midweek. Late Wednesday, however, investors turned cautious after Iran's Tasnim News agency said that the US' latest proposal contained some unacceptable provisions. Nevertheless, the US Dollar (USD) Index lost about 0.5% for the day and Wall Street's main indexes rose between 1.3% and 2.1%. According to the latest headlines, Iran is expected to officially respond to the US' proposal for ending the war on Thursday. Reflecting the upbeat sentiment, US stock index futures trade modestly higher on the day, while the USD Index stays in the red below 98.00.
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 weakest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.19% | -0.17% | -0.22% | 0.27% | -0.62% | -1.28% | -0.33% | |
| EUR | 0.19% | 0.00% | -0.07% | 0.46% | -0.38% | -1.10% | -0.11% | |
| GBP | 0.17% | -0.00% | -0.09% | 0.45% | -0.39% | -1.10% | -0.13% | |
| JPY | 0.22% | 0.07% | 0.09% | 0.56% | -0.34% | -0.97% | -0.11% | |
| CAD | -0.27% | -0.46% | -0.45% | -0.56% | -0.86% | -1.52% | -0.58% | |
| AUD | 0.62% | 0.38% | 0.39% | 0.34% | 0.86% | -0.71% | 0.26% | |
| NZD | 1.28% | 1.10% | 1.10% | 0.97% | 1.52% | 0.71% | 0.99% | |
| CHF | 0.33% | 0.11% | 0.13% | 0.11% | 0.58% | -0.26% | -0.99% |
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).
The minutes of the Bank of Japan's (BoJ) March policy meeting showed early Thursday that some members argued that maintaining the policy rate was appropriate amid heightened uncertainties in the Middle East, while agreeing that they should continune to raise rates as the economy and prices improve. USD/JPY stays relatively quiet and fluctuates above 156.00 after losing nearly 1% on Wednesday.
EUR/USD holds its ground and trades in positive territory above 1.1750 after gaining about 0.5% on Wednesday. Earlier in the day, the data from Germany showed that Factory Orders rose by 5% on a monthly basis in March, surpassing the market expectation for an increase of 1% by a wide margin. Additionally, Eurostat reported that Retail Sales in the Eurozone declined by 0.1% in March.
Gold gathered bullish momentum and rose nearly 3% on Wednesday, posting its largest one-day gain since late March. XAU/USD extends its rally and trades at its highest level in two weeks above $4,700.
AUD/USD corrected lower after touching its highest level in nearly four years above 0.7270 on Wednesday but managed to end the day in positive territory. The pair gains traction in the European session on Thursday and trades above 0.7250.
GBP/USD clings to marginal gains above 1.3600 in the European morning on Thursday after rising about 0.4% on Wednesday.
Risk sentiment FAQs
What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?
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.
What are the key assets to track to understand risk sentiment dynamics?
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.
Which currencies strengthen when sentiment is "risk-on"?
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.
Which currencies strengthen when sentiment is "risk-off"?
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.
