As we dive into the global financial markets on Monday, July 15, we see that they have started the week cautiously due to news of an assassination attempt on former President Donald Trump. While there are no major economic data releases scheduled for today, investors will be keeping an eye on Federal Reserve (Fed) Chairman Jerome Powell’s speech at the Economic Club of Washington later in the American session.
Taking a look at the performance of the US Dollar against other major currencies over the past week, we see that it was weakest against the Japanese Yen. The US Dollar Index continues to hover above 104.00, staying in a consolidation phase in the early European session on Monday. Additionally, the benchmark 10-year US Treasury bond yield remains above 4.2% and US stock index futures are trading slightly higher.
During the Asian trading hours, data from China revealed that the Gross Domestic Product (GDP) expanded at a pace of 4.7% in the second quarter. This figure was lower than the market’s expectation for a 5.1% growth. Retail Sales in June grew by 2% year-on-year, falling short of analysts’ estimates, while Industrial Production expanded by 5.3%, down from the previous month. The disappointing Chinese data has had an impact on currency pairs like AUD/USD, which fluctuates below 0.6800.
EUR/USD saw a gain of over 0.6% last week and is currently trading around 1.0900. Meanwhile, GBP/USD rose by over 1% for the second consecutive week, reaching a yearly high and trading below 1.3000. Gold, which struggled to maintain bullish momentum last week, managed to hold steady above $2,400 at the beginning of this week. On the other hand, USD/JPY is finding it challenging to recover after suffering losses in the previous week, trading below 158.00.
In the world of finance, the terms “risk-on” and “risk-off” are widely used to describe investor sentiment. During a “risk-on” market, investors are optimistic about the future and more willing to invest in risky assets. In contrast, a “risk-off” market sees investors playing it safe by opting for less risky assets due to concerns about the future.
In a “risk-on” environment, stock markets tend to rise, commodities (excluding Gold) gain value, and currencies of commodity-exporting nations strengthen. Cryptocurrencies also see an uptick during these periods. On the other hand, a “risk-off” market sees an increase in the value of Bonds, Gold shining, and safe-haven currencies like the Japanese Yen, Swiss Franc, and US Dollar performing well.
During “risk-on” periods, currencies like the Australian Dollar, Canadian Dollar, and New Zealand Dollar tend to rise due to their heavy reliance on commodity exports. Conversely, in “risk-off” scenarios, the US Dollar, Japanese Yen, and Swiss Franc are the go-to choices for investors looking for safety.
Overall, understanding the dynamics of “risk-on” and “risk-off” markets is crucial for investors to navigate the global financial landscape effectively. Keeping a close eye on economic data releases, central bank speeches, and geopolitical events can provide valuable insights into market trends and potential opportunities for traders and investors alike.