US Dollar Braced for Further Swings in Risk as Middle East Conflict Escalates

US Dollar Price and Analysis

• Iran has ‘no plan for immediate retaliation’ for the attack on Isfahan.
• VIX jumps to a fresh multi-month high.

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Gold Price Update: Israeli Attack Lifts Safe Haven Appeal, Weighs on Risk Assets

Iran has ‘no plan for immediate retaliation against Israel’ after an attack on the province of Isfahan, a senior Iranian official has told the Reuters News Agency, downplaying fears, for now, of a further escalation in the war between the two countries. It remains to be seen if this latest attack was anything more than a symbolic action by Israel to appease the hardliners in the government, or if it is the start of further military retaliation after the Iranian drone attack earlier last Saturday.

Safe haven assets jumped on the news. Gold popped back above $2,400/oz., while US Treasuries, the Japanese Yen, and the Swiss Franc grabbed a bid. Some of these early gains are now being erased as traders price in the recent comments from Iran.

Why Major Currencies and Gold are Safe Havens in Times of Crisis

The VIX ‘Fear Gauge’ also jumped at the open but is currently giving back some of its early gains.

VIX S&P 500 Volatility Index

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US Treasury yields fell sharply at the open with the 2-year touching 4.88% before turning higher. Recent Fed commentary suggests that rate cuts in the US are set to be pushed back even further with financial markets now forecasting the first rate cut at the September 18th FOMC meeting. The daily chart shows a potential bull flag being made, and if this plays out then the mid-October 5.25% print may come under pressure.

UST 2-Year Yield Daily Chart

The US dollar index remains within touching distance of posting a fresh multi-month high, boosted by its risk-off status. The daily chart also shows a potential bull flag being made and this, along with ongoing hawkish Fed speak, may leave the October 2nd high vulnerable.

US Dollar Index Daily Chart

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