Forex Today: Mideast uncertainty keeps USD supported ahead of next batch of US data
Here is what you need to know on Tuesday, August 4:
The US Dollar (USD) stabilizes after posting moderate recovery gains on Monday as market optimism about a diplomatic resolution to the conflict in the Middle East fades. In the second half of the day, the economic calendar will feature Goods Trade Balance, JOLTS Job Openings and Factory Orders data for June from the United States (US).
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 strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.37% | 0.48% | 0.33% | 0.35% | 0.37% | 0.60% | 0.45% | |
| EUR | -0.37% | 0.13% | -0.04% | -0.00% | 0.10% | 0.25% | 0.09% | |
| GBP | -0.48% | -0.13% | -0.51% | -0.14% | -0.03% | 0.12% | -0.03% | |
| JPY | -0.33% | 0.04% | 0.51% | 0.10% | 0.19% | 0.40% | 0.23% | |
| CAD | -0.35% | 0.00% | 0.14% | -0.10% | 0.10% | 0.30% | 0.10% | |
| AUD | -0.37% | -0.10% | 0.03% | -0.19% | -0.10% | 0.13% | -0.02% | |
| NZD | -0.60% | -0.25% | -0.12% | -0.40% | -0.30% | -0.13% | -0.15% | |
| CHF | -0.45% | -0.09% | 0.03% | -0.23% | -0.10% | 0.02% | 0.15% |
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).
Markets turned risk-positive at the beginning of the week as US President Donald Trump called off planned attacks on Iran and said talks will resume from Monday. Trump said late Monday that this was Iran's "last chance" to sign a deal but Iran has denied that any negotiations were ongoing. After falling more than 7% on Monday, crude Oil prices rebound early Tuesday. At the time of press, the barrel of West Texas Intermediate (WTI) was trading near $79.50, rising about 1% on the day.
Analysts at Commerzbank note that the latest leg lower in crude was driven by a sudden shift in geopolitical expectations, after "President Trump had called off what was described as a major planned strike over the weekend to allow more time for negotiations, triggering the sharp drop in oil prices." However, they caution that the underlying risk premium has not fully disappeared, stressing that "the continued uncertainty over the waterway remains a key risk as shipping through the Strait has yet to return to normal."
After opening with a bearish gap and touching its lowest level since mid-June below 99.50 on Monday, the USD Index staged a rebound to end the day marginally higher. In the European morning on Tuesday, the USD Index fluctuates in a narrow channel above 100.00.
USD/JPY fluctuated in a wide range on Monday before closing virtually unchanged. The pair gains traction early Tuesday and recovers toward 158.00.
US-Japan FX intervention seen linked to Dollar liquidity and Treasury selling concerns
Analysts at MUFG note that recent joint FX intervention between the US and Japan came with “some additional interesting details,” including Scott Bessent’s emphasis on a potential “expansion of the FIMA facility for foreign central banks to obtain short-term Dollar liquidity.” They argue that “the fact that this was discussed highlights the likelihood that concerns around possible forced selling of US Treasuries over the medium-term” were an important driver behind the coordinated FX action.
EUR/USD reversed its direction following the previous week's rally and closed in negative territory on Monday. The pair holds steady and moves sideways at around 1.1500 in the European morning on Tuesday.
GBP/USD lost about 0.4% on Monday but managed to stabilize comfortably above 1.3400 early Tuesday.
Gold (XAU/USD) failed to make a decisive move in either direction on Monday and ended the day little changed above $4,000. XAU/USD stays in a consolidation phase above $4,050 in the European morning on Tuesday.
Gold steadies as geopolitical relief meets lingering US rate uncertainty
ING strategists observe that Gold’s recovery remains constrained by conflicting forces, with the metal “likely to remain caught between improving geopolitical sentiment and ongoing uncertainty over US interest rates.” They add that “any further decline in energy prices could help improve the macro backdrop for bullion,” but caution that “expectations for rates to stay higher for longer may continue to limit upside,” keeping gains in check despite a more supportive environment on the geopolitical and inflation fronts.
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.
