Dollar buoyed by safe-haven bids, rate jitters
cautious trade as tensions in the Middle East escalated, while investors awaited a speech by Federal Reserve Chair Jerome Powell later this week for further clues on the U.S. central bank's rate outlook.
The Israeli shekel fell to more than an eight-year low of 3.9900 per dollar in early Asia trade, after the country's Prime Minister Benjamin Netanyahu vowed on Sunday to «demolish Hamas» as his troops prepared to move into the Gaza Strip in pursuit of Hamas militants.
Carry trades funded by the yen could be the biggest casualty of further escalation in the war, analysts said, as global investors who have for months been shorting the yen to invest in higher-yielding currencies buy it back as a safe-haven.
The yen was last steady at 149.53 per dollar.
The Japanese currency, which is near to potential intervention levels around 150, could also rally if the Fed has to stop hiking rates even as the Bank of Japan feels compelled by domestic inflation to tighten policy.
The BOJ has continued to maintain its ultra-easy policy settings although markets are rife with speculation that it could move to gradually exit from the accommodative stance sooner rather than later.
«Obviously war is inflationary, disrupts growth and threatens risk assets,» James Malcolm, head of FX strategy at UBS in London.
«The largest overhang I can see in this regard is dollar-yen, where the BOJ must pivot regardless and the carry trade that has built up now amounts to nearly half a trillion dollars.»
Elsewhere, the safe-haven dollar stood near a one-week high against a basket of currencies as risk sentiment remained fragile, pinning the euro near a one-week low hit on Friday.
The single currency was last 0.11% higher at $1.0522.
Sterling gained
