Safe-Haven Currencies Retreat From Highs

Safe-Haven Currencies Retreat From Highs

07 January 2020

After brief panic on financial markets following rising tensions in the Middle Easter due to US air strike killing Iranian top general, situation is going back to normality, and safe haven currencies retreat from highs.

No Need to Panic

                Last week, in the air strike in Baghdad launched by the US forces a major Iranian general, Qassem Soleimani, was killed, which caused tensions in the Middle East, as well as protests on streets of Teheran. Iran promised to take avenge on the US. However, after couple of days it looks so far no further action will be taken by Iran, and situation calmed down. Also markets stopped being so panicked. Investors rushed last weekend to buy Swiss francs or Japanese yens. Some violent moves were observed on their exchange rates, as well as on the US dollar prices. On Tuesday rates were corrected.

Safe-Haven Assets Pull Back

                CHF exchange rate pulled back from four-month highs of last week, and on Tuesday its price against the euro and US dollar weakened – by 0.2% versus USD to 0.9712 francs and by 0.4% against the euro to 1.0860 francs. Another safe-haven currency, the Japanese yen, went down from three-month highs versus US dollar. When it comes to gold, its price straight after the new Middle East crisis jumped by 2.4% to 1,600 dollars per ounce, recording the highest level in six years. On Tuesday its price was little changed, as apart from the geopolitical situation other factors influence gold price, like weak exchange rate, central banks’ policies and still not certain deal between China and US.

USD and Euro Rates

                On Tuesday the US dollar exchange rate went up by 0.1% to 108.46 yen, comparing to high level of 107.77 yen on Monday. The US currency also rose against the euro, after it fell down on Monday. The EUR/USD exchange rate was down by 0.2% to 1.1176 dollars. The index measuring the rate of USD against the basket of currencies was at 96.721, stable level. Good performance of USD on Tuesday was due to preliminary deal to be signed on Jan. 15 that would de-escalate the trade war. Also, US is the most liquid currency in the world, so when market becomes flexible, its exchange rate gains. The euro got some support in recent days by better than expectations’ business survey data from euro zone, but it was not enough to move a lot EUR exchange rate. However, there are some positive sing about inflation’ acceleration in December and strong retail sales in the euro zone, which might suggest improvement in economic activity is on cards in 2020.

In Other News

                Stock markets also rebouned on Monday after couple of harsh days. The British pound was at 1.160 dollars. The onshore yuan hit the five-month high – 6.915 per dollar, whereas the offshore yuan gained 0.5% and stood at 6.929 per dollars, the highest point since Dec. 13, which give signs that investors are really hopeful of US-China trade deal. The Australian dollar collapsed by 0.9% to 0.6876 dollars, as bushfires destroy the country and investors worry about their economic impact.