A surge in geopolitical tensions in the Middle East, particularly around the Strait of Hormuz, has fueled safe-haven demand for the US Dollar (USD) and impacted major currency pairs on Monday. Reports from Iranian media claimed that Iran targeted a US ship, though a US official denied any such attack, and footage of 'warning shots' against US Navy destroyers was released by Iranian sources. Former President Trump commented that the US could restart strikes on Iran if 'they misbehave,' casting doubt on the ceasefire's durability [1]. The uncertainty has kept risk appetite fragile, with safe-haven flows supporting the USD and capping gains in risk-sensitive currencies such as the Australian Dollar (AUD) [2] and the British Pound (GBP) [1].
The GBP/USD pair fell 0.34% to 1.3531, pressured by the stronger US Dollar and closed UK markets due to a public holiday. The US Dollar Index (DXY) rose 0.19% to 98.39, while a fire at UAE petroleum facilities following an Iranian drone attack pushed WTI oil prices higher, further supporting the Greenback [1]. Technical analysis suggests GBP/USD maintains a bullish bias above key moving averages, but broader sentiment remains sensitive to Federal Reserve policy expectations [1].
AUD/USD traded near 0.7190 ahead of the Reserve Bank of Australia (RBA) policy decision, with the RBA expected to hike rates by 25 basis points to 4.35%. While this expectation provided some support to the AUD, upside was limited by ongoing Middle East risks and safe-haven USD demand. Technicals indicate a neutral near-term bias for AUD/USD, with the pair consolidating around its 20-period SMA [2].
USD/JPY steadied around 157.00 after a sharp move during the Asian session, which saw the pair briefly drop to 155.71 before rebounding. This sudden movement, absent a clear catalyst, has fueled speculation of Japanese government intervention in the FX market, though the Ministry of Finance has not confirmed any action. Reuters reported that Japanese authorities may have spent around 5.48 trillion JPY last week to support the Yen. Finance Minister Satsuki Katayama reiterated Japan's readiness to act against speculative moves, in line with an agreement with the US. Analysts at MUFG and OCBC expect potential further interventions if USD/JPY approaches 160.00, but emphasize that the Yen's longer-term path will depend on Bank of Japan policy [3].
Looking ahead, markets are focused on upcoming US economic data, including Factory Orders, the ISM Services PMI, and Friday's Nonfarm Payrolls report, which are expected to be decisive for Federal Reserve policy expectations [1][3]. New York Fed President John Williams is also scheduled to speak, potentially influencing sentiment [1].
CONCLUSION
Geopolitical tensions in the Middle East and speculation of Japanese FX intervention have driven safe-haven flows into the US Dollar, pressuring major currencies and supporting the Greenback. Market participants remain cautious, awaiting key US economic data and central bank signals for further direction. The situation remains fluid, with risk sentiment highly sensitive to developments in both geopolitics and monetary policy.