Safe-haven flows dominate financial markets at the beginning of the week as investors react to the latest news surrounding the Israel-Iran conflict. S&P will release revisions to July PMI data for the Euro area, Germany, and the UK on Monday, while later in the day, the ISM Services PMI report for July will be featured in the US economic docket. Meanwhile, market participants will keep a close eye on geopolitical developments.
US Secretary of State Tony Blinken has reportedly told his counterparts from the G7 countries over the weekend that Iran and Lebanese group Hezbollah could attack Israel as early as Monday. The White House announced that President Joe Biden will meet with his national security team on Monday to discuss “developments in the Middle East.” In the meantime, The Times of Israel reported that Israel could launch a preemptive attack to deter Iran if it uncovered “airtight evidence that Tehran was preparing to mount an attack.”
Growing fears over a deepening crisis in the Middle East force market participants to seek refuge, causing risk-sensitive assets to suffer heavy losses. The US dollar struggles to benefit from risk-off flows following the disappointing July jobs report and the DXY dollar index was down 0.6% on the day at 102.63. The benchmark 10-year US Treasury bond yield continues to push lower and remains below 3.8% after losing nearly 10% in the previous week.
The Rise of Safe-Haven Currencies
The Japanese Yen seems to be shining as the go-to safe haven asset at the start of the week. USDJPY was down 2.4% on the day, testing 143.00. Reflecting the broad-based JPY strength, EURJPY lost 2% at 156.80 and GBPJPY fell 2.3% at 183.24. The Swiss Franc is another traditional safe-haven currency that’s gathering strength. USDCHF was last seen losing nearly 1% on the day at around 0.8500, trading at its weakest level since the first week of January.
EURUSD gained more than 1% on Friday after the weak NFP labour market data from the US triggered a USD selloff. The pair preserves its bullish momentum early Monday and was last seen trading at its highest level since early March above 1.0950. Gold rose more than 2% in the previous week and registered a record-high weekly close above $2,440. XAUUSD is relatively quiet on Monday and trades near Friday’s closing level.
AUDUSD came under strong bearish pressure in the Asian session and touched a fresh 2024-low at 0.6348. Although the pair managed to recover toward 0.6450, it’s still down over 1% on the day. The Reserve Bank of Australia (RBA) will announce monetary policy decisions on Tuesday.
