FOREX-DOLLAR ADVANCES VERSUS THE EURO AS INVESTORS FLEE THE RISK OF THE ISRAELI-PALESTINIAN CONFLICT

As armed clashes between Israel and the Palestinian islamist group Hamas fueled concerns that the crisis would spread outside of Gaza, the safe-haven dollar gained value against the euro and the pound on Monday.

Israel's response to the unprecedented, comprehensive assault by Palestinian militants out of the Gaza Strip, in accordance with Prime Minister Benjamin Netanyahu, will “change the Middle East.”

The revelation that Israel had activated a record 300,000 reservists and a warning to residents of specific parts of the Gaza Strip to flee were the most recent signs that Israel may land assault to topple Hamas. Risk perception at the time was unsteady.

“I'm still not convinced that the geopolitics is going to drive the markets,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

“We don't know yet, but as long as the war is just between Israel and Hamas in the Gaza ... that it's not a broader war, as long as it's contained, then I think that we can go back and focus on the economic fundamentals,” he said.

The Israeli shekel dropped 2.84% to trade at 3.9470 to the dollar following the Bank of Israel's declaration that it would sell up to $30 billion in foreign currency on the open market in order to maintain stability. Shekel prices earlier dropped more than 3% to 3.9880, or about an eight-year low.

The dollar index, which compares the value of the dollar to six other currencies, increased by 0.047%, while the euro declined by 0.35% to $1.0549.

Another well-known safe-haven currency, the Japanese yen, increased 0.28% to 148.89 per dollar. There was a holiday in Japan.

Sterling dropped to 1.2209 against the dollar, or 0.19%.

It is wise to keep US cash on hand in case a war breaks out anyplace in the world. Therefore, it should not be surprising that the dollar started trading last night with some gains, according to Commerzbank's Ulrich Leuchtmann, Head of FX and Commodity Research.

The dollar gained statistics showed that U.S. employment rose for the first time in eight months in September, possibly paving the way for Thursday's higher-than-anticipated inflation reading.

According to data provided on Friday by the U.S. Commodity Futures Trading Commission, net long bets on the dollar increased to a one-year high.

For the week ending October 6, the value of the net long dollar position was $10.55 billion.

However, according to statistics from CME Group, investors do not anticipate another rate increase from the Federal Reserve in November. Futures are pricing an 85% chance that Fed policymakers will decide to keep rates on hold at their policy meeting in November.

Current negative correlation between risk appetite and the US dollar will worsen once further. According to Paul Mackel, global head of FX analysis at HSBC, that way of thinking is highlighted by its inability to capitalize on favorable U.S. labor market data.

The dollar index, which rates the dollar against six other currencies, suffered its first weekly loss on Friday after 11 weeks of gains.

According to data released on Monday, German industrial production fell by 0.2% less than predicted in August compared to a possible euro zone recession.

The Chinese yuan held its value against the dollar on the first trading day after the Asian Golden Week holiday because of a stronger-than-expected government guidance fix.

Offshore yuan decreased 0.18% to 7.2964 per dollar.