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 if Iranian industries are hit again, Tehran’s next response will be more painful.
Markets showed a risk-off tone, with the US Dollar described as resilient. The US Dollar Index (DXY) was up 0.7% at around 100.25 at the time of writing.
Understanding Risk On And Risk Off
In market terms, “risk-on” and “risk-off” describe how much risk market participants are prepared to take. Risk-on is linked with optimism and demand for higher-risk assets, while risk-off is linked with caution and demand for safer assets.
In risk-on periods, equities often rise, most commodities (except gold) can gain, and commodity-exporter currencies may strengthen, alongside cryptocurrencies. In risk-off periods, bonds—especially major government bonds—often rise, gold can perform well, and the US Dollar, Japanese Yen and Swiss Franc tend to benefit.
Currencies often linked with risk-on include the Australian Dollar, Canadian Dollar and New Zealand Dollar, plus the rouble and South African rand. Currencies often linked with risk-off include the US Dollar, Japanese Yen and Swiss Franc.
With this direct threat from Iran, the market is now in a clear risk-off mood. We’ve seen the CBOE Volatility Index (VIX), often called the market’s “fear gauge,” surge over 30% to a reading of 22. Brent crude oil has also jumped 5% to trade above $95 a barrel, its highest level in over a year, reflecting fears of a disruption to global supply.
As we would expect in a risk-off environment, money is flowing into safe-haven currencies. The US Dollar is showing strength, with the DXY index pushing past 100.50 as investors seek the security of US government debt. We are seeing similar safe-haven demand for the Japanese Yen and the Swiss Franc, which are both gaining against other major currencies.
Implications For Currencies And Volatility
Conversely, currencies tied to global growth and commodity exports are weakening significantly. The Australian Dollar has fallen by over 1.2% against the US Dollar as traders anticipate a drop in demand for raw materials. This pressure is likely to continue for currencies like the Canadian Dollar and the New Zealand Dollar if tensions remain high.
This situation feels very similar to the shipping disruptions we saw in the Red Sea throughout late 2024 and 2025. From our perspective last year, we learned that even localized conflicts can create sustained inflationary pressures on global supply chains. Traders must now account for a higher geopolitical risk premium, especially since war risk insurance for vessels passing through the Strait of Hormuz has already increased sharply.
In the coming weeks, we believe derivative traders should consider strategies that benefit from increased volatility. Buying options on major stock indices or in the energy sector could be advantageous, as these instruments can profit from large price swings without betting on a specific direction. This approach allows a trader to position for either a sharp escalation of the conflict or a sudden relief rally if tensions ease.
