Safe-Haven Flows Dominate as Tensions Between Israel and Hamas Escalate
Here is what you need to know on Monday, October 9: After Israel declared war on the Palestinian Hamas group on Tuesday, investors sought refuge to start the week as geopolitical tensions escalated. At last, the US Dollar Index traded in positive territory below 106.50 after opening with a bullish gap. The New York Stock Exchange and Nasdaq Stock Market will operate at regular hours even though bond markets in the US will remain closed during Columbus Day. The US stock index futures were last seen losing 0.5% to 0.6%, reflecting the risk-averse market environment.
At least 700 people have died after Hamas fired a barrage of rockets from the Gaza Strip over the weekend, according to Israeli military reports. About 100,000 Israeli reserve troops have been deployed near Gaza, while fighting continues in at least three areas of southern Israel.
Reuters reported that the Bank of Israel plans to sell $30 billion in foreign currency on the open market on Monday, October 9. As part of the conflict between Israel and Palestinian militants in Gaza, this is the central bank’s first foreign exchange sale, intended to stabilize the financial situation. Reuters reported that the Bank of Israel plans to sell $30 billion in foreign currency on the open market on Monday, October 9. As part of the conflict between Israel and Palestinian militants in Gaza, this is the central bank’s first foreign exchange sale, intended to stabilize the financial situation.
In response to this action, the market responded positively immediately, and the shekel recovered from significant initial declines. To mitigate volatility in the shekel exchange rate and maintain essential liquidity for the smooth operation of the markets, the bank has announced its intention to intervene in the market.
A central bank statement also revealed that up to $15 billion would be allocated to provide liquidity through SWAP mechanisms. The agency stressed ongoing vigilance, saying it would monitor developments across all markets and use any available tools as necessary.
Currency woes
It added that the shekel had declined by more than 2 percent, reaching a more than seven-and-a-half-year low of 3.92 per dollar before the announcement. At the current rate, the shekel stands at 3.86, reflecting a decrease of 0.6 percent.
As early as 2023, the shekel had already registered a 10 percent decline against the dollar, primarily due to the government’s judicial reform plan, which drastically restricted foreign investment.
Strategic moves
Since 2008, Israel has accumulated forex reserves worth more than $200 billion by purchasing foreign currency. As a result, exporters were protected from excessive strengthening of the shekel, especially in the wake of a surge in foreign investment in Israel’s technology sector.
According to Reuters, Bank of Israel Governor Amir Yaron informed Reuters that despite a significant depreciation in the shekel, which contributed to inflation, there was no need for intervention.
In the early part of the day, the European economic docket will include only the Sentix Investor Confidence Index for October. In the second half of the day, several Federal Reserve policymakers will address the market.
As of the time of press, EUR/USD was down 0.4% on the day at 1.0545, after starting the week in negative territory.
In the wake of Friday’s third consecutive day of gains, GBP/USD turned south on Monday, falling below 1.2200.
West Texas Intermediate crude oil prices soared to $87 before falling to $86, but they were still up nearly 4% daily. Due to rising oil prices, the commodity-sensitive Canadian Dollar benefits from USD/CAD being steady at around 1.3650 early Monday, despite the broad-based USD strength.
As a safe-haven currency, the Japanese Yen held firm against the USD on Monday, fluctuating above 149.00 in a tight channel. Earlier in the day, Gold opened with a bullish gap and was last seen at $1,852, having risen over 1% on the day.
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