US Dollar Rises Near 3.04 Shekels Amid Middle East Tensions, Stable Globally

The US dollar climbed to 3.038 shekels from yesterday's 3.00 shekels, while the euro rose to 3.476 shekels from 3.445 shekels. Globally, the dollar remained stable but is expected to record a weekly decline following weaker-than-expected US inflation data released this week. This data led traders to reduce bets on imminent Federal Reserve interest rate hikes, although escalating attacks in the Middle East have dampened market sentiment.

The conflict between Iran and the United States intensified, breaking the ceasefire established last month and increasing demand for safe-haven assets like the dollar. This escalation also pushed oil prices to a one-month high. The US military launched its fifth consecutive night of strikes. Despite the tensions, Israeli officials believe Iran does not want to drag the Israel Defense Forces into the current round of conflict, warning, "If they make the mistake, they will pay a heavy price." Meanwhile, 32 drones launched attacks on Kuwait today, most of which were intercepted.

In currency markets, the euro traded at 1.1445 dollars, on track for a 0.29% weekly gain. The British pound stood at 1.3476 dollars, heading for a 0.56% weekly rise amid easing concerns about the UK's fiscal outlook. The Japanese yen hovered near a 40-year low at 162.39 per dollar, with traders cautious about possible intervention from Tokyo. The US dollar index, measuring the currency against six others, was at 100.58 and expected to fall 0.24% for the week.

OCBC strategists noted that the US dollar remains the highest-yielding safe-haven currency among G10 nations and is likely to continue outperforming when markets price in stronger US growth, higher interest rates, or increased global risk. Recent US data showed a slight rise in retail sales in June, with online spending surging despite lower fuel prices, prompting economists to raise second-quarter growth forecasts. Labor market stability further underscored economic resilience.

Economists anticipate the Federal Reserve will keep interest rates steady this month after inflation data showed moderation in June. However, policymakers remain cautious about relying on a single month of improvement following previous inflation setbacks. Fed Vice Chair Philip Jefferson indicated openness to rate hikes if inflation does not improve soon. The probability of a July rate increase dropped to 11% from 25% last week, with traders now pricing in 26 basis points of hikes by December, down from 44 earlier this week.