Safe-Haven Currencies Strengthen as US and Israeli Strikes in Iran Rattle Markets
The Japanese yen and Swiss franc, known for their safe-haven status, gained value following US and Israeli military operations against Iran over the weekend. The strikes, some of the most severe in decades, included the killing of Iran’s Supreme Leader Ayatollah Ali Khamenei. Markets reacted immediately when trading resumed on Monday.
The euro weakened, falling about 0.4% to $1.1769, and dipped 0.6% against the Swiss franc to 0.90391, marking its lowest level since 2015. The US dollar declined slightly versus the Japanese yen, trading at approximately 155.85 yen, and fell 0.3% against the Swiss franc. However, the dollar strengthened against the British pound and Australian dollar.
The attacks and expected Iranian retaliation caused widespread concern about rising energy prices and disruptions in the Gulf region, a critical hub for global trade. The Strait of Hormuz, a narrow passageway through which about 20% of the world’s oil supply passes, saw halted oil, gas, and shipping traffic starting Saturday, with numerous vessels anchored and unable to move.
Oil prices have already reacted sharply. Brent crude oil rose 8% to 10% in over-the-counter markets, hovering around $80 per barrel after closing at $73 last Friday, its highest in nearly a year. OPEC+ announced a modest output increase of 206,000 barrels per day, which is less than 0.2% of global supply and unlikely to calm price pressures.
Stock markets in the Gulf showed signs of strain. Major indexes mostly fell on Sunday, with Kuwait’s Boursa closing trading temporarily and the United Arab Emirates suspending its stock markets on Monday. These actions reflect the growing economic disruption in the region. Chinese markets also drew attention, given China’s reliance on Iranian oil.
Analysts outlined two possible scenarios. One predicts limited disruption to global energy markets, containing the impact on the world economy. The other foresees a prolonged conflict that triggers an oil shock, affecting commodities, bond yields, currencies, and equity sectors sensitive to oil prices. Analysts at Lombard Odier highlighted that the first scenario seems to be unfolding at present but warned that a longer conflict could deeply influence inflation expectations and monetary policies globally.
Markets are watching energy closely to gauge their direction in stocks, bonds, and currencies. Safe-haven assets like gold are also expected to rise alongside the yen and franc. Conversely, global stocks may decline as investors grow cautious.
Volatility remains contained for now. The VIX index, a measure of stock market fear, has not spiked sharply yet. Bitcoin, which often falls during times of risk aversion, dropped below $64,000 on Saturday but recovered to about $66,400 on Monday, near its previous level.
The US dollar’s position as a safe haven faces a test in this context. While it traditionally strengthens during global crises, recent US political instability has weakened its appeal. Marko Papic, chief strategist at BCA Research, suggested that a lack of a strong rally in the dollar would signal trouble for its cyclical strength.
Investors continue to assess geopolitical developments as the situation in the Middle East evolves. The market response to last year’s strikes against Iran had been brief, but experts believe this event could have more lasting effects.
The coming days will be critical in determining how the conflict affects energy supplies, inflation rates, and global economic growth. Traders, policymakers, and businesses remain alert to any new developments that may influence markets worldwide.
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