Dollar Holds Steady as US-Iran Talks Remain in Focus; Aussie Weakens on Inflation Data

The U.S. dollar traded largely unchanged on Wednesday as investors closely monitored negotiations between the United States and Iran aimed at ending the ongoing conflict. Meanwhile, the Australian dollar moved lower following weaker-than-expected inflation figures.

Currency markets remained cautious ahead of key U.S. economic releases later this week, while renewed military activity involving Iran continued to increase geopolitical uncertainty.

Forex Markets Stay Cautious Before Key U.S. Economic Data

Traders largely avoided major positions as markets awaited important U.S. reports on economic growth and inflation.

A revised reading of first-quarter U.S. GDP is expected on Thursday, alongside the Personal Consumption Expenditures (PCE) price index — the Federal Reserve’s preferred measure of inflation.

These reports could influence expectations around future U.S. interest rates and shape near-term direction for the dollar.

Dollar Stabilizes as Attention Turns to US-Iran Negotiations

The U.S. Dollar Index remained relatively flat in Asian trading after posting modest gains earlier in the week.

Investor attention stayed focused on diplomatic efforts between the U.S. and Iran regarding a potential ceasefire and the reopening of the Strait of Hormuz, one of the world’s most important oil shipping routes.

Reports suggested indirect negotiations continued despite recent U.S. military strikes targeting locations in southern Iran.

However, uncertainty remains over whether both sides are close to reaching an agreement. U.S. officials initially expressed optimism but later adopted a more cautious tone regarding the talks.

Euro Gains Slightly While Yen and Yuan Remain Under Pressure

Among major currencies, the euro strengthened modestly against the dollar, while the British pound traded with limited movement.

The Japanese yen recovered slightly after the USD/JPY pair recently moved back above the 159 level. Meanwhile, China’s yuan remained near a three-year low against the U.S. dollar.

The broader currency market reflected ongoing caution as geopolitical risks and economic uncertainty continued influencing sentiment.

Australian Dollar Falls After Softer Inflation Reading

The Australian dollar weakened after inflation data for April came in below expectations.

Australia’s Consumer Price Index (CPI) slowed from the previous month, supported by lower oil prices and reduced pressure from government fuel-related duties.

The softer inflation reading increased expectations that the Reserve Bank of Australia (RBA) could leave interest rates unchanged at its upcoming June meeting.

Core Inflation Remains a Concern for Australia

Despite cooling headline inflation, underlying price pressures remained elevated.

Core inflation increased slightly during April, suggesting inflation beyond energy costs continues affecting the broader economy.

Analysts at Capital Economics stated the latest data strengthens the case for an RBA pause in June. However, they also warned inflation could accelerate again later this year, potentially leading to additional interest rate hikes.

South Korean Won Falls Ahead of Central Bank Decision

Elsewhere in Asia, the South Korean won weakened ahead of Thursday’s Bank of Korea interest rate decision.

The meeting will be the first under new Governor Hyun-Song Shin, who is widely viewed as maintaining a more hawkish approach toward monetary policy.

Investors will watch closely for signals on future rate direction as inflation and growth concerns continue shaping regional markets.