Key Moments
- EUR/USD trades near 1.1540 in the European session after extending earlier Asian losses.
- Meanwhile, the US Dollar Index rises 0.6% toward 99.50 as risk-off flows intensify.
- Higher oil and gasoline prices raise fresh Eurozone inflation concerns after strong February HICP data.
EUR/USD Weakens as Risk-Off Mood Dominates
EUR/USD trades near 1.1540 in the European session on Monday. The pair extends losses seen earlier during Asian trading. Investors are reducing exposure to risk-sensitive assets.
Tensions in the Middle East are escalating. The conflict involves the United States (US), Israel, and Iran. As a result, global risk sentiment has deteriorated.
Consequently, investors are shifting toward safe-haven assets. This move is supporting the US Dollar and putting pressure on EUR/USD.
Meanwhile, US equity futures highlight the cautious mood. S&P 500 futures are down almost 2% in European trading. The decline signals weaker risk appetite across global markets.
At the same time, the US Dollar is gaining strength. The US Dollar Index (DXY), which tracks the Greenback against six major currencies, rises about 0.6%. It currently trades near 99.50.
Oil Price Spike Adds to Euro’s Headwinds
The Euro (EUR) also faces pressure from rising energy prices. Oil markets reacted sharply to the conflict involving Iran.
Over the weekend, the United States and Israel reportedly targeted several Iranian oil depots. As a result, crude and gasoline benchmarks moved significantly higher.
Higher fuel prices are creating new inflation risks for the Eurozone. In addition, rising energy costs could reduce households’ real purchasing power. This development may also weigh on consumer spending.
Eurozone Inflation Already Running Above Projections
Inflation pressures in the Euro area were already building before the latest oil rally. February data showed stronger-than-expected price growth.
Both headline and core readings of the Harmonized Index of Consumer Prices (HICP) exceeded forecasts. Headline inflation reached 1.9% year-on-year. Meanwhile, core inflation rose to 2.4% YoY.
| Region | Indicator | Period | Reading | Basis |
|---|---|---|---|---|
| Eurozone | Headline HICP | February | 1.9% | YoY |
| Eurozone | Core HICP | February | 2.4% | YoY |
| United States | US Dollar Index (DXY) | Current session | ~99.50 | Level, +0.6% |
| United States | S&P 500 futures | European trade | Down almost 2% | Session move |
Market Focus Turns to US CPI and Fed Outlook
Attention in the United States is now turning to inflation data. February Consumer Price Index (CPI) figures will be released on Wednesday.
Investors will study the report closely. The data may provide new clues about inflation trends and the Federal Reserve’s policy outlook.
Understanding Risk Sentiment in Markets
Definitions of “Risk-on” and “Risk-off”
In financial markets, the terms “risk-on” and “risk-off” describe how willing investors are to take risk. In a risk-on environment, investors feel optimistic about economic growth.
As a result, they are more willing to buy higher-risk assets. In contrast, a risk-off environment appears when investors become cautious. During these periods, they prefer safer investments with more stable returns.
Key Assets to Monitor for Sentiment Shifts
During risk-on periods, stock markets usually rise. Most commodities also gain value because stronger growth increases demand. However, Gold often behaves differently.
Commodity-linked currencies can strengthen as demand for raw materials increases. In addition, cryptocurrencies often rise when investor risk appetite improves.
In contrast, risk-off markets favor defensive assets. Government bonds typically rise, especially major sovereign bonds. Gold also attracts strong demand as a safe haven.
At the same time, currencies such as the Japanese Yen, Swiss Franc, and US Dollar tend to strengthen.
Currencies That Benefit in “Risk-on” Conditions
Several currencies perform well during risk-on periods. These include the Australian Dollar (AUD), Canadian Dollar (CAD), and New Zealand Dollar (NZD).
Some emerging-market currencies may also benefit. Examples include the Russian Ruble (RUB) and the South African Rand (ZAR).
These economies rely heavily on commodity exports. When global growth expectations improve, demand for raw materials rises. Consequently, their currencies often strengthen.
Currencies Favored in “Risk-off” Phases
Other currencies usually gain during risk-off periods. The main examples are the US Dollar (USD), Japanese Yen (JPY), and Swiss Franc (CHF).
The US Dollar benefits from its status as the world’s reserve currency. During crises, investors often buy US government debt because it is considered safe.
Similarly, the Japanese Yen gains support from demand for Japanese government bonds. A large share of these bonds is held domestically, which helps stabilize the market.
Meanwhile, the Swiss Franc attracts investors seeking financial stability. Switzerland’s strict banking framework also enhances capital protection.
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