Dollar Drops, Yen Gold Swiss Franc Rally Over Geopolitical Tensions
The US dollar lost some ground against other major currencies in early Monday trading session as traders reacted to developments over the weekend.
Traders remained fixated on safe-havens such as the Yen and Gold, following attacks on crucial oil processing facilities in Saudi Arabia. The attacks have heightened tension in the region amidst growing concerns that the U.S. will react.
The drone attacks knocked out as much as 5% of global oil supply triggering a 15% spike in oil prices. While the Houthi Group has claimed responsibility, the U.S is pointed a finger against Iran hinting at the possibility of military actions.
The Canadian Dollar, which often moves in tandem with oil prices, was up 0.5% as the Norwegian Krone rose 0.6% against the dollar as tension escalated in the Middle East.
The dollar index, which tracks the strength of the greenback in relation to other major currencies, was down by 0.2% after an impressive rally last week. As the dollar weakened the Yen, Pound and Euro continued from where they left last week.
Yen Gold Franc Euro Pound Rally
The Japanese Yen and the Swiss Franc, which are traders’ favorite in times of crisis, were up 0.3% on the dollar weakness. The USD/JPY pair fell to 107.60, pointing to Yen strength as the Swiss franc touched $0.9871.
Gold another safe haven was up 1% as traders realigned their portfolios.
Just like the Safe Havens, the Euro and British Pound also continued to edge higher after a flurry of positive developments in recent days. The Pound rallied as the British Parliament put brakes to the possibility of the Kingdom exiting the European Union without a deal as pushed by Prime Minister Boris Johnson.
The Euro on its part rallied even on the ECB cutting interest rates. The catalysts behind a bounce back to the $1.1000 level was the announcement of a bonds buyback program.
In the aftermath of the Drone attacks in Saudi Arabia, the outcome of central banks meetings will be the center of attention in the forex market in the week. Economic data from Australia and New Zeeland will also dictate how the respective currencies trade against the dollar.
The Federal Reserve is poised to cut interest rate later on Wednesday. Failure to do so could send the markets on a frenzy as a rate cut appears prized in.
Bank of Japan on its part is expected to push interest rate further into negative as the European Central Bank did last week.
Trade War Talks
Away from Central Bank's reports, chatter touching on trade talks between the U.S. and China will also have a significant impact on currencies direction of trade. Last week, there was a form of stability in the financial markets as the two economic powerhouses offered olive branches ahead of trade talks next month.
President Donald Trump oozing in optimism about a positive outcome from the trade talks helped calm the nerves after weeks of tensions. Amidst the solid gains of progress, sentiments in the market remain fragile as ever, as previous trade talks have amounted to nothing.