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Markets remain risk-averse ahead of key data releases - Faicy

News & Analyses

Markets remain risk-averse ahead of key data releases

Here is what you need to know on Thursday, May 30:

Safe-haven flows dominate the financial markets in the second half of the week, allowing the US Dollar (USD) and the Japanese Yen to stay resilient against risk-sensitive currencies. Business and consumer sentiment data for May will be featured in the European economic docket, alongside the Unemployment Rate for April. Later in the day, the US Bureau of Economic Analysis will publish its second estimate of the first-quarter Gross Domestic Product (GDP) growth and the US Department of Labor will release the weekly Jobless Claims data.

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 Euro.

USD   0.48% 0.41% -0.16% 0.46% 0.45% 0.31% -0.37%
EUR -0.48%   -0.09% -0.61% -0.01% -0.10% -0.26% -0.81%
GBP -0.41% 0.09%   -0.58% 0.07% 0.00% -0.10% -0.75%
JPY 0.16% 0.61% 0.58%   0.58% 0.59% 0.56% -0.24%
CAD -0.46% 0.01% -0.07% -0.58%   -0.03% -0.15% -0.88%
AUD -0.45% 0.10% -0.00% -0.59% 0.03%   -0.08% -0.76%
NZD -0.31% 0.26% 0.10% -0.56% 0.15% 0.08%   -0.69%
CHF 0.37% 0.81% 0.75% 0.24% 0.88% 0.76% 0.69%  

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).

Following Tuesday’s decline, major equity indexes in the US stretched lower on Wednesday. The USD Index gained 0.5% and climbed to a two-week-high, while the benchmark 10-year US Treasury bond yield extended its recovery toward 4.6%. Early Thursday, the USD Index consolidates its gains slightly above 105.00 and US stock index futures trade deep in negative territory, losing between 0.6% and 0.9%. 

During the Asian trading hours, New Zealand (NZ) Finance Minister Nicola Willis presented the government’s annual Budget for 2024. According to the report, the Treasury sees inflation falling to below 3% in the third quarter of 2024 and retreating to the 2% target around 2026. After losing 0.4% on Wednesday, NZD/USD extended its slide and was last seen trading below 0.6100.

Despite the broad-based USD strength, USD/JPY turned south as the Japanese Yen benefited from safe-haven flows. At the time of press, USD/JPY was down 0.6% on the day at 156.70.

Japanese Yen rises as traders bet BoJ implementing rate hike, Tokyo’s inflation looms.

EUR/USD came under heavy bearish pressure on Wednesday and registered its largest one-day decline since late April, losing 0.5% on the day. The pair struggles to stage a rebound early Thursday and trades slightly below 1.0800.

GBP/USD declined sharply on Wednesday and erased its weekly gains. The pair stays on the back foot in the European morning and trades below 1.2700

Rising US yields and the renewed USD strength weighed on XAU/USD on Wednesday and the pair lost nearly 1%. Early Thursday, Gold holds steady at around $2,330.

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.


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