U.S. Dollar and Yen Surge Amid Middle East Tensions

The US dollar rebounded from an eight-month low on Monday, while the yen climbed against other currencies as geopolitical tensions in the Middle East worsened, driving investors to seek safe-haven refuge.

The UK markets were closed for a public holiday, thus volume was lower than usual.

The Swiss franc strengthened after Israel and Hezbollah exchanged missiles in one of the most intense border skirmishes in over a decade.

“Geopolitical tension is definitely a factor. “Israel and Lebanon undoubtedly moved the market,” said Amo Sahota, executive director of Klarity FX in San Francisco. “Oil prices climbed by nearly 3%. They were down last Friday, so the recovery has benefited certain currencies, including the yen, Swiss franc, and Canadian dollar.”

In afternoon trade, the US dollar index, which measures the value of the dollar against six major currencies, rose 0.2% to 100.84, up from its low of 100.53 in late December.

The dollar was flat to slightly higher against the yen, trading at 144.51. It previously fell to a three-week low of 143.45.

The euro slipped 0.1% against the Japanese yen, trading at 161.45 yen, while the Swiss franc fell 0.7% to 169.97.

According to Helen Given, an FX trader at Monex USA in Washington, the yen has gained more than other safe havens, particularly against the dollar, as it continues to benefit from an expected U.S. interest rate cut next month, as confirmed by Federal Reserve Chair Jerome Powell in a hawkish speech in Jackson Hole, Wyoming last Friday.

This caused traders to lock in bets on a 25 basis point (bps) rate decrease in September, as well as raise expectations for a massive 50 basis point rate cut.

“Powell comes in and sounds really quite alarmist, in a way, particularly his comments around employment reports,” said Klarity’s Sahota.

“He said nothing about moderate, progressive rate decreases. He appeared to be writing an open letter, stating that “if data suggests, we will go hard and fast.”

The dollar gained somewhat versus the yen as statistics revealed that US durable goods orders increased 9.9% in July after dipping in June. Non-defense capital goods orders excluding aircraft, a key indicator of company spending plans, fell 0.1% after a revised 0.5% increase in June.

The euro fell 0.3% against the dollar, hitting $1.1161. According to Reuters, ECB policymakers are planning another rate drop on September 12.

The risk-off mentality also weighed on the Australian, New Zealand, and Norwegian currencies, all of which fell against the dollar.

At the same time, the risk-off approach helped the Swiss franc. The dollar fell 0.1% versus the Swiss franc, to 0.8469 francs. The euro also lost 0.3% against the Swiss franc, reaching 0.9454.

Sterling fell 0.2% against the dollar to $1.3192, after reaching a high of $1.3229 on Friday for the first time in 17 months. The Bank of England’s Andrew Bailey stated on Friday that it is “too early” to declare victory over inflation, indicating a less aggressive approach to interest rate cuts compared to the Fed.