Forex Today: Markets turn risk-averse to start December

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Here is what you need to know on Monday, December 1:

Financial markets adopt a cautious stance to start the week and the month of December, with US stock index futures falling between 0.5% and 1% in the European morning on Monday. In the second half of the day, the US economic calendar will feature the Institute for Supply Management's (ISM) Manufacturing Purchasing Managers' Index (PMI) report for November.

In the Asian session, the data from China showed that the RatingDog Manufacturing PMI fell into the contraction territory at 49.9 in November from 50.6 in October. This reading came in below the market expectation of 50.5. After rising nearly 1.5% in the previous week, AUD/USD edges lower on Monday and trades in negative territory below 0.6550.

The US Dollar (USD) Index lost more than 0.7% last week as dovish comments from Federal Reserve (Fed) officials fed into expectations of a 25 basis points (bps) rate cut in December. Fed Chair Jerome Powell will participate in a panel discussion on George Shultz and his economic policy contributions but he is not expected to talk about monetary policy because the Fed is within its blackout period ahead of the meeting on December 9-10. The USD Index holds steady at around 99.50 to start the European session on Monday.

US Dollar Price Last 7 Days

The table below shows the percentage change of US Dollar (USD) against listed major currencies last 7 days. US Dollar was the weakest against the New Zealand Dollar.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.67%	-0.86%	-0.59%	-0.81%	-1.28%	-2.01%	-0.48%
EUR	0.67%		-0.20%	0.09%	-0.14%	-0.63%	-1.35%	0.19%
GBP	0.86%	0.20%		0.29%	0.06%	-0.43%	-1.15%	0.39%
JPY	0.59%	-0.09%	-0.29%		-0.22%	-0.75%	-1.57%	0.11%
CAD	0.81%	0.14%	-0.06%	0.22%		-0.48%	-1.21%	0.32%
AUD	1.28%	0.63%	0.43%	0.75%	0.48%		-0.73%	0.84%
NZD	2.01%	1.35%	1.15%	1.57%	1.21%	0.73%		1.56%
CHF	0.48%	-0.19%	-0.39%	-0.11%	-0.32%	-0.84%	-1.56%

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).

Bank of Japan (BoJ) Governor Kazuo Ueda said on Monday that delaying interest rate hike for too long could cause sharp inflation and force the central bank to make rapid policy adjustment. USD/JPY stays under modest bearish pressure and declines toward 155.50 early Monday.

EUR/USD stays relatively calm on Monday and consolidates last week's gains, slightly below 1.1600. On Tuesday, Eurostat will publish the Harmonized Index of Consumer Price (HICP) inflation data for November.

Gold started the week on a bullish noted and touched its highest level since late October above $4,250 in the Asian session on Monday. XAU/USD corrects lower but manages to hold comfortably above $4,200 in the European morning.

GBP/USD registered small daily losses on Friday but gained about 1% for the week. The pair edges lower toward 1.3200 to start the European session.

(This story was corrected on December 1 at 08:02 GMT to say that Fed Chair Jerome Powell is not expected to talk about monetary policy.)

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.