US Dollar Strengthens amid Middle East Tensions and Dovish Fed Comments
The U.S. dollar maintains its safe-haven status as violence escalates in the Middle East. However, dovish comments from Fed officials limit the currency’s gains.
The U.S. dollar edged higher on Tuesday, supported by its safe-haven status as violence in the Middle East continued. The Israeli military announced that over 200 targets were struck in Gaza in response to attacks by the Palestinian group Hamas. As the conflict intensifies, the dollar is likely to see further support.
Meanwhile, the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher at 105.925 at 03:05 ET (07:05 GMT). This positive movement demonstrates the continued demand for safe-haven assets.
Uncertainty in the Middle East Boosts Dollar, Weakens Yen
While the dollar strengthens, the yen is slightly weaker, with USD/JPY trading at 148.89. The dollar’s strength against the yen is a reflection of the ongoing Middle East tensions. However, the yen’s retreat from the 150 level suggests a possible stabilization in the market.
Furthermore, the Israeli shekel steadied just off an almost eight-year low, with USD/ISR falling 0.2% to 3.9375. The Israeli central bank’s promise to sell $30 billion in foreign exchange has helped stabilize the currency.
Fed Officials Question Need for Further Interest Rate Hikes
The dollar’s gains are limited due to dovish comments from a couple of Fed officials. Dallas Fed President Lorie Logan suggested that if long-term interest rates remain elevated, there may be less need to raise the Fed funds rate. Fed Vice Chair Philip Jefferson also emphasized the need for caution given the recent rise in yields. These comments indicate a potential slowdown in interest rate hikes.
As we await the release of the minutes from the September monetary policy meeting and upcoming U.S. data, several Fed officials are scheduled to speak later on Tuesday. Their statements will provide further insight into the future direction of monetary policy.
Euro Weakens as Lagarde’s Speech Approaches
The euro fell 0.1% to 1.0561 ahead of the release of August’s inflation figures. The data is expected to show a 5.0% annual fall, worsening from the previous month’s 2.1% drop. This decline raises concerns about a potential recession in the region.
European Central Bank President Christine Lagarde is set to speak later in the session at the IMF and World Bank annual meetings in Morocco. Her remarks will shed light on the central bank’s outlook and potential policy measures.
Meanwhile, other major currencies, including the pound, Australian dollar, and New Zealand dollar, experienced slight declines amid ongoing market uncertainties.
