During the last few trading days, the foreign exchange market has been highly volatile, especially determined by investor risk aversion sentiment. The USD/JPY currency pair extended from Monday’s advance. On Tuesday, it reached 155.70, climbing to the highest level since early February. Traders joined a world market full of uncertainty. This substantially increased demand for safe-haven currencies, namely the US Dollar (USD), Japanese Yen (JPY), and Swiss Franc (CHF).
The EUR/USD pair declined 0.1% on Tuesday, marking its third-straight day close in the red. At the same time, GBP/USD traded sideways, hovering close to 1.3150 in early-Wednesday action. As the North American market opened on Wednesday, AUD/USD had recouped the entire loss seen on Monday. It had a hard time keeping up that pace as the day continued.
Safe-Haven Currency Dynamics
The volatility in currency has been compounded by the strong “risk-off” sentiment which has dominated the markets. In times of uncertainty, especially when geopolitical tensions are running high, investors tend to flock toward safe-haven assets—the USD, JPY, and CHF. This trend is clearly demonstrated in the strong consolidation phase of the USD/JPY pair. On Wednesday morning it was holding just above 155.50 through the early European hours.
Gold was helped by this flight to safety, making small gains on Tuesday. Our favorite among the precious complex, the XAU/USD pair has extended its bullish advance, nearing $4,100 in early action on Wednesday. This is underscored by increasing government bond prices and demand for safe-haven currencies, indicating a massive flight to quality amongst investors. With multiple uncertainties in the market, all eyes are on investors looking for a safe space.
“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 sentiments behind these currencies are super important to traders because they can hint at larger emerging economic sentiment. The Japanese Yen, typically a proxy for risk sentiment, has remained resilient with other safe havens.
Currency Performance Overview
When the market opened on Wednesday, the EUR/USD pair was trading slightly below 1.1600. This move represented a loss of around 0.2% for the day. This retreat underscores the persistent volatility of the Euro, against a backdrop of uncertainty on Euro economic data and further geopolitical tensions.
GBP/USD’s proximity to 1.3150 shows that the pair is in a consolidation phase as traders wait for more headlines related to the UK economy. Investors are getting defensive on GPD. The most recent economic indicators all point to little new exciting movement in the economic trading space.
The AUD/USD pair recovered from earlier in the week’s plunge. It was having trouble holding on to those gains as of early Wednesday morning. February drop of more than one billion dollars highlights the persistent problems in the Australian economy today. Most eye-popping was the Wage Price Index, which jumped an annualized 3.4% in Q3.
“We are conducting interviews for potential candidates,” – US President Donald Trump
The larger backdrop of these pro-democracy movements is highlighted by what’s happening—politically—in our own backyard, here in the United States. President Trump recently signaled that he knows whom he wants for his next big appointment, so he misses the mark on this one.
“I already know who my choice is going to be.” – US President Donald Trump
Political leaders’ words can be a powerful driver of sentiment. Savvy investors know that where there’s political stability, there’s typically greater economic returns.