MARKETS TODAY: Turbulence Following Escalation in Middle East

April 19, 2024

ICYMI – Market summary for today, 19 April 2024

Israel’s attack on Iran following a retaliatory drone strike, has intensified market volatility. This series of events caused a flight to safety among investors, influencing various asset classes and currency valuations globally. Following the initial news, the Swiss franc appreciated against the dollar, with an increase to 0.9089, reflecting a 0.35% rise on the day. Such movements were more pronounced earlier, suggesting an immediate risk-off sentiment among traders.

Israel’s credit rating has also been downgraded by S&P due to escalating regional tensions – a move which is indicative of the greater risk and instability in the region. The country is now rated AA- with heightened risks.

Changes in Markets Today

The yen saw an appreciation, reaching 154.38 against the dollar, a rise of approximately 0.2%. Historically, during times of uncertainty, on top of gold, both the Swiss franc and the yen have served as reliable safe havens. For instance, during the 2011 European debt crisis, both currencies experienced significant appreciation due to their perceived stability amidst regional instability.

The Australian and New Zealand dollars both dropped to five-month lows, with the Aussie falling to $0.64015 and the Kiwi to $0.58825. These movements underscore the sensitivity of these currencies to shifts in risk sentiment, particularly in the context of geopolitical strife.

Currencies Fall

Turning to the prospect of higher-for-longer interest rates in the United States, the ongoing robustness of the U.S. economy continues to recalibrate expectations around Federal Reserve policy. The anticipation of rate cuts has been markedly adjusted with only about 40 basis points of easing now expected, down significantly from earlier predictions of 160 basis points.

In Asia, the pressure on local currencies prompted a trilateral warning from the finance chiefs of the United States, Japan, and South Korea regarding potential interventions. This reflects a serious concern over the weakening of the Korean won, which hovered above the 1,400 mark against the dollar, indicating a potential area for joint currency intervention.

As central banks prepare for their upcoming policy meetings, the statements and actions they take will be crucial in shaping market movements. For example, the Bank of Japan hinted at a possible rate hike if the yen’s depreciation leads to inflation concerns, which could influence their policy decisions in the near future.

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