Asian Currencies Trade Sideways as Iran War Risks Dominate
Most Asian currencies moved within a narrow range on Monday, as markets remained focused on the potential escalation of the U.S.-Israel conflict involving Iran.
Regional currencies largely held onto recent losses, with investor sentiment staying cautious amid ongoing geopolitical uncertainty.
Yen Outperforms on BOJ Signals and Intervention Warnings
The Japanese yen showed relative strength compared to its regional peers, supported by a more hawkish tone from Bank of Japan Governor Kazuo Ueda during a parliamentary speech.
Additionally, Japanese officials issued stronger warnings about possible action against currency speculation. Top currency diplomat Atsushi Mimura stated that authorities may take “decisive steps” if pressure on the yen continues.
As a result, the USD/JPY pair declined by 0.4%, slipping back below the 160 level, as the yen rebounded from its weakest levels since July 2024.
BOJ Policy Outlook Supports Yen Recovery
Governor Ueda also emphasized that the central bank is closely monitoring currency movements and their impact on import-driven inflation.
His remarks suggest that the Bank of Japan may consider interest rate hikes in the coming months, particularly as rising energy prices continue to push inflation higher.
Dollar Holds Steady Above Key Level
The US Dollar Index remained stable in Asian trading after reclaiming the 100 level last week.
The dollar’s strength has been supported by rising oil prices linked to the Iran conflict, which have led markets to scale back expectations for Federal Reserve rate cuts.
Interestingly, the dollar showed little reaction to comments from U.S. President Donald Trump, who indicated that negotiations with Iran were progressing and that a potential ceasefire could be near.
Regional Currencies Remain Under Pressure
Across Asia, currency movements remained limited.
The Chinese yuan stayed largely unchanged, while the South Korean won weakened by 0.5%. Other currencies, including the Singapore dollar, were stable, while the Australian dollar edged lower.
Energy Risks Weigh on Market Sentiment
Investor confidence remains fragile due to concerns over the potential disruption of oil flows through the Strait of Hormuz, a critical global energy route.
Although Iran allowed some oil tankers to pass through over the weekend, the passage remains largely restricted amid ongoing tensions with the U.S. and Israel.
The situation could escalate further after Iran-backed Houthi forces launched attacks on Israel, raising fears of a broader regional conflict.
India and Other Economies Face Currency Pressure
Several Asian economies remain highly exposed to energy supply risks, making them particularly vulnerable.
The Indian rupee recently hit a record low of 95 per dollar, reflecting these pressures. However, the currency rebounded on Monday after the Reserve Bank of India introduced measures to curb foreign exchange speculation, triggering dollar selling among domestic traders.
