Asian Currencies Weaken as Geopolitical Tensions Rise
Most Asian currencies moved lower on Monday, while the dollar held steady as investors grew increasingly concerned about a potential escalation in the U.S.-Israel conflict with Iran. Market sentiment was further shaken after President Donald Trump issued a firm ultimatum to Tehran, raising fears of broader regional instability.
At the same time, rising oil prices kept regional markets under pressure, intensifying concerns over energy-driven inflation. This environment has also reinforced expectations that major central banks in developed economies may maintain a more hawkish stance.
Dollar Stabilizes After Recent Losses
The dollar index and its futures stabilized during Asian trading hours, following declines recorded in the previous week. The pause in downward momentum reflects cautious positioning by investors amid ongoing geopolitical uncertainty and inflation concerns.
Indian Rupee Hits Record Low Amid Oil Price Surge
The Indian rupee emerged as one of the weakest performers, with the USD/INR pair climbing 0.3% and surpassing the 94 level for the first time in history.
India remains particularly exposed to disruptions in global energy supplies, as higher oil prices are expected to put sustained pressure on the currency. Adding to concerns, local reports संकेत a potential gas shortage within the country.
With nearly 80% of its oil and gas needs imported—primarily from the Middle East—India’s vulnerability to supply shocks remains significant. However, further downside in the rupee has been partially limited by ongoing intervention from the Reserve Bank of India in the foreign exchange market.
South Korean Won Declines Despite Hawkish Outlook
The South Korean won also weakened, with the USD/KRW pair rising 0.2%, although it remained below a 17-year high reached earlier in the session.
Support for the won came from expectations that the newly appointed Bank of Korea Governor, Shin Hyun-song, may adopt a hawkish monetary policy stance. Markets are increasingly pricing in the possibility of interest rate hikes later this year.
Shin, widely recognized for anticipating the 2008 financial crisis, has indicated a preference for a more “balanced” policy framework. Nonetheless, analysts interpret his previous comments—particularly on excessive liquidity, lending risks, and inflation—as signaling a tightening bias.
According to ING analysts, the Bank of Korea could begin raising rates as early as July, especially as the Iran crisis adds further inflationary pressure.
Broad Weakness Across Asian FX Markets
Across the region, most Asian currencies traded lower. The Japanese yen weakened slightly, with USD/JPY rising 0.1%, while the Chinese yuan also declined, pushing USD/CNY up nearly 0.4%.
The Singapore dollar followed a similar trend, with USD/SGD gaining 0.1%, while the Australian dollar underperformed, as AUD/USD dropped 0.6%.
Investor sentiment remained fragile amid escalating tensions involving Iran. President Donald Trump warned that Tehran had 48 hours to reopen the Strait of Hormuz or face potential U.S. strikes targeting critical energy infrastructure.
In response, Iranian officials threatened retaliatory actions against key energy and water facilities across the Middle East, including the possibility of fully closing the strategic strait.
With the conflict now entering its fourth consecutive week and no clear signs of de-escalation, markets continue to price in heightened geopolitical risk and prolonged volatility.
