Japanese Yen and US Dollar Surge on Middle East Tensions
The Japanese yen reached a three-week high against the US dollar on Monday, while the US dollar itself recovered from an eight-month low. This shift was driven by escalating geopolitical tensions in the Middle East, prompting investors to seek safe-haven currencies like the yen and the dollar. The Swiss franc, another traditional safe-haven currency, also saw gains against major peers.
With UK markets closed due to a public holiday, trading activity is expected to be lighter than usual.
Escalating Conflict in the Middle East
Over the weekend, Israel and Hezbollah exchanged missiles in one of the most intense border clashes in over ten months. Hezbollah launched hundreds of rockets and drones at Israel early on Sunday, leading Israel's military to respond with airstrikes, aiming to thwart a broader attack.
Helen Given, an FX trader at Monex USA, highlighted that "the story today is definitely hinging on geopolitical risk," noting the FX market's reaction to the tensions. She added that the yen's gains, particularly against the dollar, were bolstered by expectations of a US interest rate cut, as confirmed by Federal Reserve Chair Jerome Powell.
Currency Movements and Economic Indicators
In mid-morning trading, the dollar dropped to a three-week low against the yen, reaching 143.45 yen, and was last down 0.2% at 144.18 yen. The yen's strength was further supported by Bank of Japan chief Kazuo Ueda's statements affirming potential interest rate hikes if inflation targets are met.
The dollar recovered slightly after data showed US durable goods orders surged 9.9% in July. However, non-defense capital goods orders excluding aircraft—a proxy for business spending plans—dipped slightly after a previous increase.
The dollar index, which measures the dollar's value against six major currencies, edged up 0.1% to 100.72, recovering from its lowest level since late December. The euro eased 0.2% against the dollar, reflecting a shift towards the US currency as a safe haven.
Impact on Other Currencies
The risk-off sentiment had a negative impact on the Australian and New Zealand dollars and the Norwegian crown, while benefiting the Swiss franc. The dollar fell 0.12% against the Swiss franc to 0.8466 francs, while the euro also fell 0.3% against the Swiss currency.
Sterling eased 0.1% against the dollar after a recent jump, highlighting the volatile nature of the currency markets amid geopolitical tensions.
Current Currency Exchange Rates (as of 26 August 02:47 p.m. GMT)
- Dollar index: 100.72
- Euro/Dollar: 1.1175
- Dollar/Yen: 144.16
- Euro/Yen: 161.57
- Dollar/Swiss: 0.8467
- Sterling/Dollar: 1.3202
- Dollar/Canadian: 1.3465
- Aussie/Dollar: 0.6779
- Euro/Swiss: 0.9462
- Euro/Sterling: 0.8463
- NZ Dollar/Dollar: 0.6211
- Dollar/Norway: 10.5269
- Euro/Norway: 11.7642
- Dollar/Sweden: 10.1920
- Euro/Sweden: 11.3898
