The market was highly influenced by the possible conflict between the United States and Iran on Monday morning. Safe-haven currencies such as the Japanese yen were in demand, while gold also generated a lot of interest, as investors were scared about the possibility of a broader conflict in the Middle East.
Analysts considered this a flight to safety, as starting with Friday, the interest started growing, following the death of Iranian Major-General Qassem Soleimani, in a U.S. drone strike at Baghdad airport.
The tensions keep growing
Donald Trump warned of a “major retaliation” if Iran hits back, while, on the other side, the country’s replacement commander promised to expel any United States soldiers from the region.
Over the weekend, Iran distanced itself from the nuclear agreement signed in 2015 – from which the United States withdrew in 2018 – declaring that it would continue to cooperate with the nuclear watchdog, but also keep developing its uranium enrichment work.
Following the weekend’s events, the Japanese yen surged on Monday morning, reaching a three-month high of 107.77 compared to the United States dollar in Asian trading.
Spot gold was also 1.4% higher, being very close to reaching a new seven-year high, not to mention that oil price rose as well, as investors began fearing that a potential conflict in the region could affect global supplies.
Among the safe currencies is also the Swiss franc which traded flat on Monday as well, being very close to a four-month high of 1.0824 against the Euro on Friday.
Finally, the United States dollar was treading water compared to six of the major currencies, but, in contrast, was a bit weaker against the euro, with the euro/dollar pair last up 0.1% at $1.1167.
Could an eventual response from Iran affect the market?
“Iran is almost certainly to respond in some scale, scope, and magnitude,” admitted Lee Hardman, currency analyst at MUFG.
“Market participants are likely to remain nervous until there is more clarity over how geopolitical tensions between the U.S. and Iran will proceed,” he added, noting that there’s a risk of seeing geopolitical tensions hurting the global economic growth, especially if the price of oil will increase.
For the moment, there weren’t any important moves made by the oil-related currencies – Canadian dollar, Russian rouble or the Norwegian crown – even though the price of the Brent crude continued to rise, topping $70 on Monday, for the first time since September 2019.