The dollar commenced Friday’s Asian session with a strong position against the majority of major currencies, following the resurgence of hostilities between the U.S. and Iran. Meanwhile, the Japanese yen remained relatively stable after recent verbal interventions from Tokyo. On Thursday, the U.S. and Iran engaged in exchanges of fire and rhetoric once more, intensifying the strain on a delicate ceasefire that has lasted for a month, as Iran assesses Washington’s proposal aimed at concluding the conflict. Oil prices surged, with U.S. crude futures increasing by as much as 3% in early trading, contributing to the prevailing risk-off sentiment in currency markets.

The dollar index, when assessed against major counterparts, showed a slight increase at 98.235. The increasing tensions have propelled the dollar for a second consecutive day, recovering from a low not seen in over two months earlier this week amid optimism for a peace agreement, positioning it to conclude the week mostly unchanged. “The path towards a lasting agreement is anything but linear,” wrote Chris Weston. Market participants have been compelled to reassess their expectations regarding the progression of the conflict and the anticipated normalization of vessel movements through Hormuz that were established in recent sessions. Markets are preparing for the U.S. non-farm payrolls report later on Friday, and it may require an unexpected figure, especially a notably weak one, to significantly impact dollar volatility, he noted.

Sterling traded at $1.3555, on track for its first weekly loss since March, as investors anticipated local election results that could intensify political pressure on Prime Minister Keir Starmer. The euro maintained its position at $1.1727, set to conclude the week slightly stronger. The Australian dollar was valued at $0.72059, while the New Zealand kiwi traded at $0.59365, with both currencies poised to conclude the week positively due to enhanced risk appetite observed earlier. Market participants maintained their attention on the Japanese yen, as recent interventions and verbal warnings from Tokyo effectively mitigated aggressive selling pressure. The yen remained stable at 156.995 during early Asian trading and is poised to conclude the week on a firm note.

Japan encounters no limitations regarding the frequency of its interventions in currency markets and maintains daily communication with U.S. officials, as stated by its leading currency diplomat on Thursday, underscoring Tokyo’s commitment to safeguarding the struggling yen. “Against the current backdrop of elevated energy prices and rising yields, Japanese intervention can only act as a safety harness on the yen’s descent, but it can’t pull it to safety,” said Tony Sycamore. Until macro and technical conditions shift, the yen is expected to continue challenging the Bank of Japan’s determination, he added.