Iranian state media reported that Iran’s Revolutionary Guards said they targeted US-linked steel and aluminium facilities in Gulf states. The Guards said the strikes were a warning and that any further hits on Iranian industries would bring a more painful response.
In markets, the US Dollar held firm amid a risk-off mood. The US Dollar Index (DXY) was up 0.7% at about 100.25.
Understanding Risk On And Risk Off
“Risk-on” and “risk-off” describe how much risk market participants are willing to take. Risk-on is linked to buying higher-risk assets, while risk-off is linked to moving towards safer assets.
In risk-on periods, equities often rise, many commodities gain, commodity-linked currencies tend to strengthen, and cryptocurrencies can increase. In risk-off periods, bonds, gold, and safe-haven currencies such as the US Dollar, Japanese Yen, and Swiss Franc tend to benefit.
Currencies often linked to risk-on include the Australian Dollar, Canadian Dollar, and New Zealand Dollar, as well as the rouble and South African rand. Currencies often linked to risk-off include the US Dollar, Japanese Yen, and Swiss Franc, supported by demand for government debt and perceived stability.
These attacks have triggered a classic “risk-off” market mood, forcing a rapid reassessment of geopolitical stability. We are seeing the US Dollar Index climb as investors flee to safety, a pattern we remember from the market shocks of 2025. This immediate flight to quality suggests we should prepare for sustained uncertainty in the coming weeks.
Given the situation, we should expect continued strength in safe-haven currencies like the US Dollar, Japanese Yen, and Swiss Franc. Options strategies that benefit from a rising dollar, such as buying call options on the DXY, are now more attractive. This is a familiar playbook that proved effective during the banking sector stress back in 2023.
Energy Volatility And Hedging
The location of these strikes puts energy markets directly in focus, echoing the supply chain fears that dominated late 2024. Brent crude has already jumped over 8% to $107 a barrel, its highest level since the third quarter of 2022. Derivative traders should consider that call options on oil futures and energy sector ETFs could perform well.
This spike in geopolitical tension is reflected in market volatility, with the VIX index surging from a calm 14 to over 22 in just two trading sessions. Gold is also acting as a primary safe haven, pushing past $2,500 an ounce as it builds on the strong rally we saw throughout 2025. Buying VIX calls or gold futures can offer a direct hedge against further market fear.
On the other side of this trade, currencies tied to global growth are likely to suffer. The Australian Dollar has already fallen to 0.63 against the US Dollar, as demand for industrial commodities is now in question. We should consider strategies that short these risk-sensitive currencies, like buying puts on the AUD/USD pair.
Equity markets will likely face downward pressure as long as this uncertainty persists. The market was already pricing in a slower pace of interest rate cuts from the Federal Reserve, and this conflict adds significant headwinds. We can use index puts on the S&P 500 or Nasdaq 100 to hedge portfolios against a potential downturn.
