Dollar Rises Above 3.05 Shekels Amid Yen's 40-Year Low and Middle East Tensions
The US dollar climbed to 3.053 shekels in Israel, with the representative rate at 3.049 shekels. The euro stood at 3.483 shekels, with a representative rate of 3.48. Globally, the Japanese yen weakened to a 40-year low of 163.15 yen per dollar. This decline follows Finance Minister Satsuki Katayama's statement that Japan is prepared to take "decisive action" in the currency market if necessary, according to Reuters. UBS Asia-Pacific's head of commodities and foreign exchange noted that intervention risks are a daily reality and that strong action from the Bank of Japan (BOJ) is needed to stabilize the yen, as a 25 basis point rate hike alone would not suffice. He emphasized signaling better real interest rates to savers as a potential stabilizing measure.
The dollar remained steady around 101 points against a basket of six major currencies after strengthening for four consecutive days amid escalating Middle East tensions and rising oil prices. Recent attacks in the region pushed oil prices higher and raised concerns about persistent inflation. Two oil tankers carrying Saudi crude to Asia altered their routes in the Red Sea due to threats from Iran-backed Houthi forces in Yemen, disrupting key energy shipping lanes. The US military announced completing its tenth consecutive night of strikes in Iran. While optimism for a US-Iran peace deal had previously lowered oil prices and inflation expectations, recent regional escalations and Federal Reserve officials' hawkish comments, including Chair Kevin Warsh, have increased inflation concerns.
Eric Berger, a foreign exchange and precious metals risk manager, stated that the market is rationally pricing in the ongoing strikes in Iran but warned the Fed's hawkish stance may intensify if the Middle East conflict persists. Meanwhile, an Iranian official told Reuters that Tehran received a mediator's proposal for a 10-day ceasefire. Market expectations for a 25 basis point Fed rate hike next week rose to 17.6%, up from 11% last week but down from 38.5% a month ago. For the September meeting, markets price a 68.1% chance of a hike.
In other currency news, the Canadian dollar fell 0.15% against the US dollar to 1.409 CAD/USD after the US imposed a 50% tariff on various Canadian goods in response to perceived discriminatory treatment of American cars, alcohol, and dairy products. The British pound weakened 0.4% to 1.3375 USD amid investor concerns over potential increased government spending and how new Chancellor John Helliwill will finance it. Andy Burnham became the UK's seventh prime minister in a decade, reaffirming commitment to previous fiscal rules. UK labor market data showed stabilization with steady wage growth and unemployment rates through May, despite recent political turmoil. Attention now turns to the European Central Bank's upcoming meeting, where economists expect no rate change but anticipate at least one more hike later this year.
