Safe-haven currencies saw gains on Tuesday after Iran launched missile strikes toward Israel, triggering a response from the United States. Meanwhile, the U.S. dollar also strengthened, buoyed by signs of resilience in the American job market.
The missile attack came as retaliation against Israel’s military actions targeting Hezbollah forces in Lebanon, a group allied with Tehran. In reaction, U.S. President Joe Biden ordered the military to support Israel’s defense and intercept any projectiles targeting the country, according to the White House National Security Council.
“The market has mostly overlooked the Middle East conflict in recent weeks, but direct clashes between Iran and Israel pose a significant risk of broader escalation,” stated Adam Button, Chief Currency Analyst at ForexLive, based in Toronto.
In the currency markets, the Japanese yen initially fell by 0.04% to 143.7 yen per dollar but bounced back slightly following the news of the missile strikes. The U.S. dollar, which had earlier touched 144.53 yen, adjusted lower as geopolitical tensions escalated.
Similarly, the Swiss franc experienced a brief rally upon the news, only to retreat and trade near its pre-announcement levels, with the dollar last up 0.2% against the franc at 0.847. The overall U.S. dollar index rose 0.45% to 101.20.
The strengthening dollar was also supported by U.S. economic data, which showed steady growth in the labor market. Job openings for August unexpectedly rose after two consecutive months of decline, indicating that hiring, although slowing, is still robust.
The manufacturing sector remained weak in September, according to the Institute for Supply Management (ISM), but showed signs of stabilization with improved new orders and declining input prices, which hit a nine-month low. Analysts believe these factors, along with falling interest rates, could pave the way for economic recovery in the coming months.
Meanwhile, traders are assessing the likelihood of another 50-basis-point rate cut at the U.S. Federal Reserve’s upcoming November meeting. Although Fed Chair Jerome Powell tempered expectations for a large cut, he did not rule out the possibility if the economic outlook were to deteriorate significantly.
“The probability of a 50 bps rate cut is still in play, but Powell appears cautious about committing to deeper reductions without more compelling data,” commented Matt Simpson, Senior Market Analyst at City Index.
In Europe, the euro slipped 0.57% to $1.1071, following remarks by European Central Bank (ECB) President Christine Lagarde, who suggested that recent trends bolster confidence in inflation returning to target levels. This will likely influence the ECB’s upcoming policy decision on October 17.
Elsewhere, Japan’s new Prime Minister Shigeru Ishiba, known for his more hawkish stance on monetary policy, introduced his cabinet as he aims to consolidate power ahead of the October 27 snap elections. Bank of Japan policymakers, however, expressed caution during their latest meeting, indicating a preference for a gradual approach to rate adjustments.
In the cryptocurrency market, Bitcoin dropped 2.89%, trading at $61,943 as broader market uncertainty weighed on digital assets.
Investors remain focused on upcoming U.S. economic indicators, including the ISM’s non-manufacturing report and the closely watched September jobs report, both due later this week. The outcomes will be critical in shaping expectations for the Federal Reserve’s next move.
