NEWS / Monetary Policy

Dollar holds war premium ahead of economic data

July 18th - It??™s been a generally quiet overnight session for the major currency pairs although some data released from Japan after yesterday??™s holiday has injected a degree of volatility into USD/JPY. Upward revisions to both the leading index and the coincident index have supported the Yen although after the run up from the 113.50 area, arguably the currency was starting to look a little oversold anyway. There??™s a raft or economic data due in the next few hours including US PPI and the TICS capital flow reading so some direction is likely to emerge, although so long as the geopolitical risk remains ??“ especially with the Israeli conflict ??“ the dollar is likely to hold value in the shorter term on the back of its perceived safe haven status. However, news such as the suggestions that both Egypt and Iran are placing the blame with Hezbollah may indicate that a diplomatic resolution will emerge in due course and with a ???war premium??? being factored into the greenback right now, any additional evidence that we may see a resolution could be sufficient to trigger profit taking off recent gains, in turn initiating a marked retreat for the dollar.

Stuart Scrase and Enis Mehmet