The conflict between Israel and Iran has not only heated up the international political arena but also stirred the global financial markets, with the foreign exchange (Forex) market quickly reacting to the flight from risk. The US dollar once again confirms its role as the number one 'safe haven', while Asian currencies find themselves in a passive position, continuously depreciating.
Geopolitical volatility and shocks to the financial markets
Geopolitical instability is always a strong catalyst for market volatility. When the risk of armed conflict escalates between globally influential countries, investors tend to react instinctively: fleeing from risk and seeking safe assets.
A typical situation has just occurred with a series of military moves between Israel and Iran. Although it has not led to a full-scale war, the level of tension is enough to ignite a 'risk-off' sentiment in the international market. This causes capital flows strongly towards safe-haven assets like USD, gold, and US government bonds, while pulling away from regions and assets considered riskier – typically Asian currencies.
Why are Asian currencies 'heavily impacted'?
Currencies such as the South Korean Won (KRW), New Taiwan Dollar (TWD), and Singapore Dollar (SGD) have all recorded a significant weakening against the USD in recent days. The cause does not lie in the fundamentals of these economies but in the structural composition of the Asian market in general:
Dependence on exports: Most Asian economies rely on global trade. Any disruption in the supply chain due to war or sanctions has an immediate impact on growth.
High foreign asset ownership ratio: When risk aversion rises, international investors quickly withdraw from emerging markets – leading to currency depreciation.
Interest rates are less attractive than USD: Many Asian central banks maintain loose monetary policies, reducing their appeal compared to the high interest rates of the US.
High regional linkage: A shock in one major economy in the region can quickly spread to other countries.
USD: The number one 'safe haven'
Despite facing many internal instabilities, the USD still plays a central role in the global financial system. There are many reasons why it always remains a safe haven whenever crises erupt:
As the global reserve currency, it accounts for a large share of trade transactions and foreign exchange reserves of central banks.
A deep liquidity market facilitates easy trading even in significant volatility.
The US economy remains the world's engine, with a highly regarded financial and legal system.
The US government bond (Treasury) market is large and safe, creating additional demand for holding USD.
What do investors need to do?
In the context of geopolitical uncertainties, traders and investors need to upgrade their risk management strategies:
Always update geopolitical information and predict global capital flows.
Understand the correlation between asset classes, especially between USD and risky assets.
Use hedging tools such as stop-loss orders and diversify portfolios.
Separate short-term volatility from long-term trends, avoiding emotional decision-making.
Conclusion
The Israel – Iran event is not only hot military news but also a strong reminder of how sensitive financial markets are to geopolitical risks. With Asian currencies, the withdrawal of capital has clearly reflected the global risk-averse sentiment. Meanwhile, the USD continues to play the role of a 'lifebuoy' amidst the world's major waves. Investors cannot ignore geopolitical factors if they want to survive – and succeed – in today's global market.