United States (US) President Donald Trump announced on Monday that he would postpone any military strikes on Iranian power plants after “good and productive talks” on a complete and complete resolution of hostilities in the Middle East.
“I have instructed the War Department to postpone all military attacks on Iranian power plants and energy infrastructure for a period of five days, subject to the success of ongoing meetings and discussions,” Trump noted.
Market reaction
In response to this situation, oil prices have plummeted, and a barrel of West Texas Intermediate was recently seen losing about 8% on the day, trading near $90.
The US dollar also came under massive selling pressure, with the US Dollar Index turning negative below 99.50 on the day.
Finally, gold has recovered sharply from its 2026 low, which hit near $4,100 earlier in the day and has recently traded above $4,400.
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 massive 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 unthreatening 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.
