Global currency markets experienced heightened volatility as traders responded to ongoing US-Iran peace negotiations, central bank interventions, and hawkish signals from the US Federal Reserve. The Indian Rupee (INR) rebounded against the US Dollar (USD), with USD/INR correcting to near 96.30 from historic highs above 97.00, supported by a sharp decline in oil prices and intervention by the Reserve Bank of India (RBI) through offshore and Non-Deliverable Forwards (NDFs) [1]. The WTI oil price traded near $96.30 after US President Donald Trump stated that Washington was in the 'final stages' of finalizing a deal with Iran, though he warned of potential military action if negotiations failed [1]. Foreign Institutional Investors (FIIs) continued to offload stakes in the Indian stock market, selling Rs. 1,597.35 crore on Wednesday and Rs. 2,457.49 crore on Tuesday, reflecting concerns over elevated oil prices and their impact on earnings projections [1]. The India HSBC Manufacturing PMI declined to 54.3 in May from 54.7, while the Services PMI rose to 58.9, and the Composite PMI eased to 58.1 [5]. At press time, USD/INR was down 0.15% to 96.40 [5].
Elsewhere, the British Pound (GBP) struggled to attract buyers, trading near 1.3430 against the USD, as traders remained cautious amid mixed signals over the US-Iran deal and hawkish Fed minutes. The Fed's April meeting minutes indicated most policymakers favored policy firming if inflation persisted above 2%, reinforcing market bets for a 25 basis point rate hike in 2026 [2][3][6]. In contrast, the Bank of England (BoE) is expected to hold rates for the remainder of 2026, following softer UK inflation (CPI eased to 2.8% in April from 3.3% in March) and a rise in unemployment to 5.0% [2].
The New Zealand Dollar (NZD) weakened despite a record trade surplus of NZD 1.92 billion in April, driven by exports rising to NZD 8.6 billion and imports declining to NZD 6.7 billion. The NZD/USD pair traded around 0.5860, pressured by risk aversion stemming from US-Iran uncertainty and hawkish Fed signals. Iranian President Masoud Pezeshkian responded defiantly to US demands, stating Tehran would not capitulate [3].
The EUR/JPY cross remained flat around 184.75, as traders eyed intervention risks following Japanese Finance Minister Satsuki Katayama's readiness to act against excessive FX volatility. Japan's Q1 GDP grew at an annualized rate of 2.1%, beating forecasts. ECB policymaker Joachim Nagel warned that persistent Iran energy shocks could prompt action at the June meeting, with 85% of economists expecting a 25 bps rate hike to 2.25% [4].
EUR/USD consolidated above 1.1600, struggling to build on the previous day's bounce amid skepticism over a US-Iran deal and hawkish Fed minutes. Technical indicators showed subdued upside momentum, with immediate support at 1.1591 and resistance at 1.1640 [6]. The USD was the strongest against the Australian Dollar this week, while it gained 0.31% against the NZD and 0.14% against the JPY [6].
CONCLUSION
Currency markets are reacting strongly to geopolitical developments, central bank interventions, and hawkish monetary policy signals. The US Dollar remains supported by risk aversion and Fed rate hike expectations, while oil price corrections and central bank actions have helped stabilize the Indian Rupee. Ongoing US-Iran negotiations and persistent inflation concerns are likely to keep volatility elevated across major FX pairs.