On Monday, the US dollar and Japanese yen saw slight gains in value due to military conflicts between Israel and the Palestinian group Hamas, which have increased political instability in the Middle East.
Investor confidence was delicate following clashes between Israeli forces and Hamas fighters over the weekend. These clashes occurred shortly after Hamas launched an attack on Israel, resulting in the deadliest day of violence in the region in 50 years.
The Israeli shekel saw a significant drop, falling by about 2.5%, with an exchange rate of 3.9325 per dollar. This decline occurred after the Bank of Israel announced its plan to sell up to $30 billion worth of foreign currency in the market to stabilize the situation. Earlier, the shekel had experienced an even more significant drop of over 3%, reaching its lowest level in almost eight years at 3.9880 per dollar.
Meanwhile, the dollar index showed a 0.33% increase, reaching 106.57. At the same time, the Japanese yen, which is also considered a safe-haven currency, saw a slight 0.1% increase, with an exchange rate of 149.15 yen per dollar. It’s important to note that this movement occurred during quiet Asian trading hours, with Japan observing a holiday.
Ulrich Leuchtmann, Head of FX and Commodity Research at Commerzbank, mentioned, “When conflicts arise anywhere globally, it’s wise to have U.S. dollars. So, it’s not unexpected that the dollar began trading with gains last night.”
Additionally, the dollar received a boost from recent data released on Friday, which revealed a significant increase in U.S. employment in September, marking the highest growth in eight months. This could potentially lead to higher-than-expected inflation figures later this week.
According to Wells Fargo economists, “The very strong employment report will likely make the Federal Open Market Committee cautious as it monitors the possibility of a tight job market preventing inflation from reaching a sustained 2% level.”
They mentioned that while there’s a chance of another interest rate increase before the year ends, their current expectation is that the last rate hike happened in July.
Market data from CME Group suggests there’s about a 78% likelihood that the Federal Reserve will maintain current interest rates at its November policy meeting.
Meanwhile, the euro and the pound, which tend to be affected by market risk, declined in value compared to the stronger U.S. dollar. The euro saw a 0.6% drop, trading at $1.0522, while the pound fell 0.5% to $1.2167.
Additionally, data revealed that German industrial production in August decreased by 0.2% more than anticipated, raising concerns about a potential economic downturn in the eurozone.
The Australian dollar, often linked to investor sentiment, decreased by 0.45% to $0.6356.
