The dollar maintained its position against major counterparts on Wednesday following the United States’ military actions in Iran, as investors looked ahead to crucial U.S. inflation figures for insights into the Federal Reserve’s policy direction. The U.S. military on Tuesday initiated strikes against Iran following President Donald Trump’s assertion that Tehran had downed a U.S. Apache helicopter in the Strait of Hormuz. This development complicates the prospects for peace between the two nations and exacerbates an already tenuous ceasefire. Trump, however, minimised the helicopter incident, stating to that it “wasn’t a big deal” and emphasised that “the pilot is fine.” Despite such events and the lapse in the ceasefire over the weekend, “we continue to assess the war to be on a de-escalatory path,” said Harry Ottley.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, edged up 0.01% to 100.02. The euro declined by 0.05% to $1.1537, while sterling experienced a decrease of 0.04% to $1.337. The U.S. economy is perceived as comparatively shielded from energy shocks in relation to its counterparts, a circumstance that has bolstered safe-haven demand for the dollar amid the Iran conflict, while exerting pressure on the euro and Japanese yen. Meanwhile, a Bank of Japan rate hike at the June 16 policy meeting is now almost fully priced in, suggesting that it is unlikely to independently catalyse a substantial reversal in yen weakness if executed. “It’s going to take some hawkish commentary from Governor Ueda that signals the BOJ could bring forward its next hike from December to September – with the possibility of a third hike before year-end,” said Tony Sycamore. Absent that or a comparable measure, the Ministry of Finance will probably have to resort to its cheque book once more to support the currency.

The Japanese yen drifted 0.03% lower against the greenback to 160.38 per dollar, continuing to hover around the 160 level widely seen as a threshold for potential official intervention. Data released on Wednesday indicated that Japan’s wholesale prices experienced a significant increase of 6.3% in the year leading up to May, surpassing forecasts and underscoring the escalating price pressures stemming from the conflict in the Middle East. Later in the day, the U.S. will release consumer price index data for May, which is considered pivotal in assessing whether the Fed may consider rate hikes later this year in light of last week’s stronger-than-expected job data. “Markets will be observing whether the effects of consistently elevated oil prices extend into the services sector and other areas. If rising inflationary pressure comes into sharper focus, the dollar is likely to attract further buying,” stated Akihiko Yokoo.

Solid growth and persistent inflation are likely to keep expectations tilted toward further U.S. rate hikes, even as any potential U.S.-Iran deal could offer some relief. Markets will be closely observing the forthcoming policy meeting of the European Central Bank scheduled for Thursday, where a 25-basis-point rate increase is broadly anticipated. The risk-sensitive Australian dollar declined by 0.1% against the greenback, settling at $0.7021. The kiwi depreciated by 0.17% against the greenback, settling at $0.5812.