The Dollar climbed to a one-week high on Thursday as escalating tensions in the Middle East intensified following new US strikes on Iran. Meanwhile, the Yen weakened toward levels that previously prompted intervention by Japan’s central bank last month.
According to Iran’s Revolutionary Guards, a US airbase was targeted in response to what they described as a US attack near Bandar Abbas airport earlier in the day, as per a Tasnim news agency report. At the same time, Kuwait’s military said its air defence systems were responding to incoming missile and drone threats.
The move came after reports that the US military launched fresh strikes against an Iranian drone operation, which Washington said threatened both American forces and commercial shipping routes through the Strait of Hormuz.
Oil prices recovered, while the safe-haven Dollar held firm as optimism for a quick end to the conflict diminished. Investors are increasingly betting that the greenback could strengthen further as the Federal Reserve prioritises tackling inflation against a backdrop of rising energy costs.
The Euro slipped 0.2% to $1.1600, while Sterling declined by nearly 0.3% to $1.3392.
Risk-sensitive currencies also came under pressure, with the Australian Dollar falling 0.4% to $0.7111, marking a one-week low. The New Zealand Dollar eased 0.3% to $0.58831.
The Dollar index, which tracks the US currency against a basket of six major peers, rose 0.17% to 99.464, hovering near its strongest level since 21st May.
Investors are now turning their attention to today’s release of the Federal Reserve’s preferred inflation measure, the core PCE deflator, which is expected to play a key role in shaping the outlook for interest rates, Reuters reports.
Furthermore, the Japanese Yen weakened as much as 159.610 per Dollar on Thursday, its lowest level since 30th April and edging close to the 160 mark that previously prompted intervention by Japanese authorities last month.
While that intervention temporarily provided policymakers with some relief, doubts remain about its long-term effectiveness.
Markets are currently pricing in around a 70% probability of a 25-basis-point interest rate hike at the Bank of Japan’s 15th-16th June policy meeting, according to LSEG data.