Forex Today: Gold advances to new record high, eyes on geopolitics and Fedspeak

Here is what you need to know on Monday, May 20:

Gold price surged higher and reached a new record peak near $2,450 at the beginning of the week. The European economic docket will not feature any data releases and major markets will be on holiday in observance of Whit Monday. In the second half of the day, several Federal Reserve (Fed) policymakers are scheduled to deliver speeches.

Reports of Iran’s President Ebrahim Raisi and Foreign Minister Hossein Amirabdollahian dying in a helicopter crash in Iran's East Azerbaijan province triggered a flight to safety in the early trading hours of the Asian session on Monday. After gaining more than 2% in the previous week, XAU/USD shot higher and was last seen rising more than 1% on the day above $2,440.

Gold price rises to a record high, escalating geopolitical tensions in focus.

Earlier in the day, the People's Bank of China (PBOC) announced that it held the Loan Prime Rates (LPR) unchanged across the time horizons. The Chinese central bank maintained the one-year and five-year LPRs steady at 3.45% and 3.95%, respectively.

PBOC keeps Loan Prime Rates steady, as expected.

After losing nearly 1% in the previous week, the US Dollar (USD) Index fluctuates in a tight channel at around 104.50 early Monday. The benchmark 10-year US Treasury bond yield stays flat slightly above 4.4% and US stock index futures trade modestly higher. Atlanta Fed President Raphael Bostic, Fed Vice Chair for Supervision Michael Barr, Fed Governor Christopher Waller and Fed Vice Chair Phillip Jefferson will be delivering speeches during the American session on Monday.

US Dollar PRICE Today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Australian Dollar.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.14%	-0.06%	0.06%	-0.09%	-0.15%	0.02%	-0.03%
EUR	0.14%		0.05%	0.24%	0.05%	0.03%	0.16%	0.11%
GBP	0.06%	-0.05%		0.04%	0.01%	-0.03%	0.10%	0.06%
JPY	-0.06%	-0.24%	-0.04%		-0.17%	-0.21%	-0.03%	-0.08%
CAD	0.09%	-0.05%	-0.01%	0.17%		-0.11%	0.10%	0.06%
AUD	0.15%	-0.03%	0.03%	0.21%	0.11%		0.13%	0.06%
NZD	-0.02%	-0.16%	-0.10%	0.03%	-0.10%	-0.13%		-0.05%
CHF	0.03%	-0.11%	-0.06%	0.08%	-0.06%	-0.06%	0.05%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

EUR/USD struggled to find direction and closed flat on Friday. Nevertheless, the pair registered gains for the fifth consecutive week. In the European morning, EUR/USD trades marginally higher on the day slightly below 1.0900.

GBP/USD rose nearly 1.5% last week and reached its highest level in nearly two months above 1.2700. The pair stays relatively quiet a few pips above 1.2700 early Monday.

USD/JPY moves up and down in a very narrow channel above 155.50 to start the new week. The findings of a survey, conducted by the Bank of Japan (BoJ) to assess its past monetary easing measures, showed that Japan is on the cusp of seeing big changes in corporate activity. "Many firms said they can no longer hire enough workers if they curb wages," the BoJ said and noted that more firms are starting to pass on rising labour costs to sales prices.

Risk sentiment FAQs

What do the terms'risk-on' and 'risk-off' mean when referring to sentiment in financial markets?

In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

What are the key assets to track to understand risk sentiment dynamics?

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

Which currencies strengthen when sentiment is 'risk-on'?

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

Which currencies strengthen when sentiment is 'risk-off'?

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.

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