Synopsis: The escalating geopolitical tensions in the Middle East have rendered a modest yet discernible influence on the foreign exchange market, primarily favoring safe-haven currencies like the US dollar, Swiss franc, and yen.
1. Movement of Safe-Haven Currencies:
- The recent flare-up between Hamas and Israel has prompted a tilt towards traditional safe-haven currencies.
- The US dollar index, which had recently dipped towards the 106.00-level, experienced a rebound, distancing itself from Friday's dip but still short of last week's peak of 107.35.
2. Oil Market Dynamics:
- The Middle East conflict's most pronounced impact has been observed in the oil market.
- Brent crude's price escalated to USD89/barrel after a previous decline that saw it touch USD83.44/barrel on Friday.
- This oil market movement comes in the wake of a substantial sell-off in the month's early days, which had seen Brent crude peak at USD97.69/barrel on 28th September.
3. USD Outlook Amid Geopolitical Unrest:
- The recent events in the Middle East, especially the unrest surrounding Gaza, have proven to be a boon for the US dollar in the short run.
- For the foreign exchange market to experience a significant jolt, the conflict would need to escalate considerably.
Closing Thoughts: MUFG suggests that while the Middle East conflict's current impact on the forex market remains relatively subdued, any substantial escalation could further bolster the USD's position.