US military base in Bahrain targeted in Iranian drone attack

A US military base in Bahrain was targeted by an Iranian drone attack on Sunday, marking Iran’s second attempt to strike the country in three days, according to a report published by the Guardian on Sunday.

Six drones were used to target the US air defence radar facility at Bahrain’s Al-Riffa air base, Iran’s Islamic Revolutionary Guards Corps (IRGC) said.

According to Bahrain’s military, its air defence systems intercepted and destroyed the Iranian air attacks “before they could achieve their objectives.” The latest strike followed Iran’s drone attack on Bahrain on Friday, which was its first attack against Gulf countries since September.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

In southern Yemen, meanwhile, advances by Iran’s Houthi allies against pro-government forces opened a possible route to Aden. Separately, Tehran claimed that an oil supertanker had been sunk by a mine in the strait of Hormuz.

How does risk sentiment affect markets?

How do “risk-on” and “risk-off” describe financial market sentiment?

Investors’ willingness to take on risk over a given period is commonly described in financial markets using the terms “risk-on” and “risk-off”. Optimism about the outlook characterises a “risk-on” market, encouraging investors to purchase riskier assets. Concern about the future, by contrast, prompts investors in a “risk-off” market to prioritise safety. They favour lower-risk assets that offer greater certainty of a return, even if that return is relatively modest.

Which assets help investors gauge changes in risk sentiment?

A favourable growth outlook generally supports equities and most commodities, apart from Gold, during “risk-on” periods. Stronger demand also lifts the currencies of major commodity-exporting nations, while Cryptocurrencies advance. When sentiment turns “risk-off”, investors typically favour Bonds, particularly major government Bonds. Gold performs well too, alongside safe-haven currencies including the Japanese Yen, Swiss Franc and US Dollar.

Which currencies tend to gain in a “risk-on” market?

“Risk-on” conditions generally support the Australian Dollar (AUD), Canadian Dollar (CAD) and New Zealand Dollar (NZD), as well as minor currencies such as the Ruble (RUB) and South African Rand (ZAR). Growth in their economies depends heavily on commodity exports. During such periods, investors anticipate stronger economic activity and, consequently, greater future demand for raw materials, which tends to push commodity prices higher.

Which currencies typically benefit from a “risk-off” mood?

During “risk-off” periods, the US Dollar (USD), Japanese Yen (JPY) and Swiss Franc (CHF) are usually the principal currency beneficiaries. As the world’s reserve currency, the US Dollar attracts support, while investors seeking safety in a crisis also buy US government debt. That debt is considered safe because the world’s largest economy is unlikely to default. The Yen benefits from stronger demand for Japanese government bonds: a large share is held by domestic investors who are unlikely to sell heavily, even during a crisis. For the Swiss Franc, support comes from Switzerland’s strict banking laws, which provide investors with greater capital protection.