By Elsie Kamsiyochi
The Japanese yen and Swiss franc rallied sharply at the start of trading after a weekend of unprecedented U.S. and Israeli strikes on Iran jolted investors and reignited fears of a broader Middle East conflict, sending shockwaves through currency, energy and equity markets.
The attacks — which killed Iran’s Supreme Leader Ali Khamenei — marked one of the most dramatic escalations in regional tensions in decades. As markets reopened late Sunday, traders rushed toward traditional safe-haven assets, pushing the yen and the franc higher while risk-sensitive currencies retreated.
The euro slid 0.4% to around $1.1769, down from roughly $1.18 in late Friday New York trading. Against the Swiss franc, the single currency dropped 0.6% to 0.90391, its weakest level since 2015. Sterling and the Australian dollar also came under pressure as investors cut exposure to growth-linked currencies.
The dollar was marginally softer versus the yen at 155.85 but strengthened against several other major currencies. Analysts said the mixed performance underscored growing uncertainty over whether the greenback still functions as the world’s undisputed safe haven amid political turbulence in Washington.
Oil at the Centre of Market Anxiety
While foreign exchange markets were the first to react, attention quickly turned to energy. Traders reported Brent crude changing hands 8%–10% higher in over-the-counter markets on Sunday, suggesting a sharp jump when formal trading resumes Monday. On Friday, Brent had already climbed to $73 per barrel, its highest level since July.
The strikes — and Iran’s retaliation — have intensified concerns about supply disruptions in the Gulf, particularly around the Strait of Hormuz, the narrow waterway through which roughly 20% of global oil supply flows.
Since Saturday, oil, gas and cargo shipments through the strait have been halted, with hundreds of vessels anchored and awaiting clarity. Any prolonged closure could deliver a severe blow to global energy markets and fuel inflation worldwide.
Although OPEC+ agreed on Sunday to a modest output increase of 206,000 barrels per day, the additional supply amounts to less than 0.2% of global demand — insufficient, analysts say, to offset a major disruption in Gulf exports.
Gulf Markets Reel, Global Investors Brace
Equity markets across the Gulf reflected mounting anxiety. Most regional bourses fell on Sunday, while Boursa Kuwait suspended trading. Authorities in the United Arab Emirates ordered stock markets closed on Monday, underscoring the economic uncertainty gripping the region.
Beyond the Middle East, investors are watching China closely. Beijing remains a major buyer of Iranian oil, and any sustained supply shock could ripple through Asia’s largest economy, influencing commodity prices, trade flows and currency movements.
Wall Street’s volatility gauge, the VIX index, has so far remained contained, but analysts caution that energy markets will likely determine the broader trajectory of global assets in the days ahead.
Scenario Planning Dominates Trading Desks
Currency markets, which reopen before most other asset classes following weekend events, offered the first glimpse of investor sentiment. Though liquidity was thin late Sunday in Europe, early price moves often set the tone for the week.
“Investors are rapidly scenario-planning,” said Samy Chaar, chief economist at Lombard Odier. “We see two potential paths: contained disruptions with limited global economic impact, or a broader, protracted conflict leading to a sustained oil shock.”
In the first scenario, volatility may ease once markets absorb the immediate geopolitical shock. In the second, rising energy costs could affect bond yields, inflation expectations, currency valuations and central bank policy trajectories — particularly if shipping through Hormuz remains suspended for an extended period.
A Critical Test for the Dollar
Historically, the U.S. dollar strengthens during periods of global turmoil. However, analysts say recent policy uncertainty during President Donald Trump’s second term has complicated that dynamic.
“Anything short of a decisive rally for the greenback would suggest the dollar’s safe-haven appeal is eroding on a cyclical basis,” said Marko Papic, chief strategist at BCA Research.
The Japanese yen and Swiss franc, both backed by strong external balances and reputations for financial stability, may therefore attract disproportionate flows if geopolitical tensions persist.
Analysts at SEB wrote in a weekend note that the current escalation “is unlikely to fade as quickly as prior episodes,” arguing that oil prices could rise at least $10 per barrel from recent levels, reinforcing support for the franc and yen.
Ripple Effects Across Asset Classes
The tremors extended beyond currencies and oil. Safe-haven gold is expected to open higher, while global equities could come under renewed selling pressure. Cryptocurrencies, which often decline during bouts of risk aversion, fell over the weekend before stabilizing.
Shipping, aviation and insurance sectors face heightened uncertainty as companies assess potential disruptions to Gulf transit routes — a critical artery for global trade.
For now, markets remain in a wait-and-see mode. But with military operations ongoing and retaliation risks high, investors are bracing for further volatility.
Much will hinge on whether the conflict remains contained or spirals into a wider confrontation — and whether energy flows through the Gulf can resume swiftly.
Until then, safe-haven currencies appear poised to remain in demand as global markets navigate one of the most consequential geopolitical shocks in recent years.
Source Reuters
Original article
Comments