According to the Fars news agency, the United States and Iran are in the final stages of an agreement, although a final decision has not been made yet. Fars reported on Friday that “informed sources rejected Trump’s new claims about a possible deal with Iran, calling his remarks a mixture of truth and lies and an attempt to portray a false victory.”
Regarding the agreement, Iran stressed that “after the US blockade is lifted, it will reopen the Strait of Hormuz in accordance with its own previously agreed arrangements.” Tehran has denied Trump’s claims that it is committed to opening the Strait without charging fees, saying there is no such clause in the agreement.
Iran’s arrangements for opening the Strait of Hormuz include monitoring and inspecting ships, providing services and implementing security measures. The deal also includes the immediate disbursement of $12 billion from Iran’s frozen targets and does not provide for the destruction of Tehran’s nuclear materials.
Frequently asked questions on risk sentiment
In the world of financial jargon, two commonly used terms, “risk enhancement” and “risk mitigation,” refer to the level of risk that investors are willing to endure over a given period of time. In a “risky” market, investors are sanguine about the future and are more willing to purchase risky assets. In a “risk-free” market, investors begin to “play it safe” because they are concerned about the future, and therefore buy less risky assets that are more likely to produce a return, even if it is relatively modest.
Typically, during periods of increased risk, equity markets rise, and most commodities – except gold – also augment in value as they benefit from positive growth prospects. The currencies of ponderous goods exporting countries are strengthening due to increased demand, and cryptocurrencies are rising. In a risk-free market, bonds rise – 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), Canadian dollar (CAD), New Zealand dollar (NZD) and smaller currencies such as the ruble (RUB) and South African rand (ZAR) tend to rise in risk-off markets. This is because the economies of these currencies rely heavily on commodity exports for their growth, and commodity prices tend to rise during risky periods. This is because investors anticipate greater demand for raw materials in the future due to increased economic activity.
The main currencies that tend to rise during “risk-free” periods are the US dollar (USD), Japanese yen (JPY), and Swiss franc (CHF). The US dollar because it is the world’s reserve currency and also because in times of crisis, investors buy US government debt, which is seen as safe and sound because the world’s largest economy is unlikely to collapse. Yen, from increased demand for Japanese government bonds because much of them are held by domestic investors who are unlikely to abandon them – even in times of crisis. Swiss franc because strict Swiss banking regulations provide investors with better capital protection.
