US Dollar Steady as Traders Monitor Middle East Tensions and Await Central Bank Speeches
The US dollar remained stable today as traders assessed the situation in the Middle East and prepared for upcoming speeches by central bank officials, including Federal Reserve Chair Jerome Powell, to gain insight into monetary policy.
The Japanese yen held close to the key level of 150 per dollar, leaving investors cautious about the possibility of intervention by Japanese authorities. The yen was last trading at 149.62 per dollar, having weakened to 150.17 on October 3, its lowest point in a year. The recent conflict in the Middle East has boosted demand for the yen, which, like the US dollar and Swiss franc, is considered a safe haven asset.
On Monday, the Israeli shekel surpassed four per US dollar for the first time since 2015 due to concerns surrounding Israel’s conflict with Palestinian militant group Hamas. The shekel experienced volatile trading on Tuesday and was last at 4.024 per dollar.
Valentin Marinov, global head of G10 FX research and strategy at Credit Agricole CIB, highlighted ongoing tensions in the Middle East and elevated global bond yields as the main drivers behind current exchange rate movements. Marinov emphasized that the key question for the markets is whether there will be further escalation of these tensions. If oil prices remain stable despite geopolitical concerns, it is possible that cost-push inflation will not accelerate, leading the Federal Reserve to maintain its recent dovish stance and rule out further interest rate hikes.
The US dollar index, which measures the currency against six major rivals, rose 0.1% to 106.37 after falling 0.4% on Monday.
Investors are eagerly awaiting a speech by Federal Reserve Chair Jerome Powell on Thursday, along with several other speeches by regional bank officials throughout the week. After October 21, Fed officials will enter a blackout period before the central bank’s meeting on October 31 to November 1.
On Monday, Federal Reserve Bank of Philadelphia President Patrick Harker cautioned against increasing borrowing costs, stating that the central bank should not create additional pressure on the economy.
According to the CME’s FedWatch tool, futures traders are pricing in only a 10% chance of a rate hike at the Fed’s November meeting, with around a 33% chance of a hike by December.
Christopher Wong, currency strategist at OCBC, predicted that the US dollar would likely trade within a range for now. He highlighted several factors that could support the dollar, including the expectation of higher interest rates for a longer period, relative US economic resilience, and fears of a broader conflict. However, Wong also noted that the Fed’s less-hawkish tone suggests that the central bank may be preparing for a prolonged pause, which could limit any upside potential for the dollar.
In other currency news, the British pound dipped after growth in regular wages for UK workers slowed from a record high, and job vacancies declined. However, the release of some labor market data, including the unemployment rate, has been delayed until next week. The pound was last trading at $1.2175, down 0.3% for the day following a 0.6% increase on Monday.
The New Zealand dollar also fell, dropping 0.6% to $0.5893, after data showed that consumer inflation reached a two-year low. This has lowered expectations that the Reserve Bank of New Zealand will further increase the cash rate in November.
The euro was down 0.1% at $1.0545, while the Australian dollar rose 0.2% to $0.6357. Minutes from the Reserve Bank of Australia’s October 3 policy meeting revealed that the central bank considered raising rates, but ultimately decided that there was not enough new information to warrant a move.
More detail via Malay Mail here… ( Image via Malay Mail )
