DOLLAR SURGES TOWARD 18-MONTH HIGH: U.S. Currency Strengthens Against Shekel as Middle East Tensions Rattle Markets
The U.S. dollar climbed toward its highest level in approximately 18 months on Monday, gaining ground against major international currencies and the Israeli shekel as investors weighed escalating tensions in the Middle East and awaited important American inflation figures expected later this week.
The dollar advanced approximately 0.37% against the shekel, reaching roughly 3.07 shekels per dollar. The increase came as global currency markets reacted to geopolitical uncertainty, fluctuations in energy prices, and changing expectations regarding the Federal Reserve’s next interest rate decision.
The U.S. Dollar Index, which tracks the American currency against a basket of six major foreign currencies, increased 0.2% to 102.43, placing it near its strongest level in a year and a half.
Financial market positioning also indicates that investors have become considerably more optimistic about the dollar’s prospects.
During the week ending October 7, positions reflecting expectations of further dollar appreciation reached approximately $36 billion, compared with just $8.4 billion three weeks earlier. Much of that increase involved positions against the euro.
Investors are now focused on Wednesday’s scheduled release of the U.S. Consumer Price Index, a closely watched inflation measure that could influence expectations for future interest rate decisions.
According to CME FedWatch data cited in the report, traders currently assign an 81% probability to the Federal Reserve leaving interest rates unchanged at its October meeting. That compares with a 51% probability one month earlier.
The shift follows last month’s Federal Reserve rate increase, described as the central bank’s first hike since 2023.
A decision to maintain current borrowing costs would indicate that policymakers are waiting for additional evidence about inflation and the broader economy before considering another adjustment.
The Middle East conflict has added another layer of uncertainty, particularly in energy markets, where renewed Houthi attacks against Saudi Arabia and strikes on two oil tankers over the weekend have heightened concerns about regional supplies.
Brent crude futures initially slipped approximately 0.5% to $104 per barrel during Monday’s trading before reversing direction. By later in the day, Brent had climbed to approximately $107.17 a barrel, reflecting renewed concerns about disruptions to oil production and transportation.
Oil prices have remained substantially elevated amid the regional fighting, with Brent trading roughly 45% above its level before the outbreak of the U.S.-Israeli conflict with Iran.
The energy market has also been reacting to President Trump’s announcement of an agreement between Russia and Ukraine to suspend attacks on energy infrastructure. However, uncertainty surrounding the implementation of that arrangement has limited its calming effect on oil prices.
The euro, meanwhile, continued its downward trend against the dollar, falling 0.22% to approximately $1.1176 after five consecutive weeks of losses.
Concerns about France’s government finances have contributed to pressure on the European currency, with investors increasingly uneasy about the country’s debt burden and the political challenges surrounding efforts to reduce its budget deficit.
The yield difference between French and German 10-year government bonds stood at approximately 140 basis points, reflecting the additional compensation investors are demanding to hold French debt.
Elsewhere in currency trading, the dollar rose to approximately 158.61 Japanese yen, while the British pound remained relatively steady at around $1.323.
India’s rupee strengthened approximately 1.1% to 95.7 per dollar after the country’s central bank introduced measures designed to ease pressure on the currency, including redirecting certain dollar purchases by oil companies away from the regular foreign exchange market.
In Israel, the Bank of Israel’s official representative exchange rate for Monday was set at 3.078 shekels per dollar, representing an increase of approximately 0.75% from the previous published rate. The euro’s representative rate stood at 3.4422 shekels.
The next major test for currency markets will come Wednesday with the release of U.S. inflation figures. Economists are expecting consumer prices to show continued pressure from rising energy costs, a development that could influence whether the Federal Reserve maintains its current interest rate or considers additional increases in the months ahead.
{Matzav.com}
