Iran’s Ballistic Missile Attack on Israel: Financial Implications and Market Reactions
On Tuesday, Iran launched over 200 ballistic missiles at Israel, sparking tensions in the region and raising concerns about a potential wider conflict. The attack occurred at 7:30 p.m. Israel time, following a warning from the US of an imminent strike. While the Israel Defence Forces managed to intercept several missiles, reports indicated that one person was killed in the West Bank, according to Bloomberg.
Israeli Response and Threat of War
Israeli Prime Minister Benjamin Netanyahu has vowed to retaliate against Iran for the missile attack. However, Tehran issued a warning that any response from Israel would lead to “vast destruction,” escalating fears of a broader conflict in the Middle East.
Market Reaction
As news of the missile attack spread, financial markets around the world reacted to the heightened geopolitical tensions. At the time of writing, the price of Gold was down by 0.06% on the day, trading at $2,661.
Understanding Risk Sentiment in Financial Markets
Risk sentiment FAQs
What is “Risk-On” and “Risk-Off” in Financial Markets?
In the world of finance, “risk-on” and “risk-off” are terms used to describe investor sentiment towards risk during a specific period. In a “risk-on” market, investors are optimistic about the future and more willing to invest in risky assets. Conversely, in a “risk-off” market, investors become more cautious and prefer safer, less volatile assets.
Market Behavior During “Risk-On” and “Risk-Off” Periods
During “risk-on” periods, stock markets tend to rise, commodities (excluding Gold) see an increase in value, and currencies of commodity-exporting nations strengthen. Conversely, in “risk-off” markets, bonds, Gold, and safe-haven currencies like the Japanese Yen and Swiss Franc perform well, reflecting investor preference for stability.
Impact on Specific Currencies during Risk-On and Risk-Off Markets
Currencies like the Australian Dollar, Canadian Dollar, and New Zealand Dollar typically rise during “risk-on” periods due to their heavy reliance on commodity exports. On the other hand, major currencies like the US Dollar, Japanese Yen, and Swiss Franc tend to strengthen in “risk-off” environments, driven by factors such as safe-haven demand and capital protection.