Asian currencies experienced a recovery as risk sentiment improved following comments from US President Trump, who stated that he foresaw the US ending the war on Iran within 2-3 weeks. The Wall Street Journal also reported that the US administration is willing to end its military campaign against Iran even if the Strait of Hormuz remains largely closed. Meanwhile, Iran’s President Pezeshkian indicated that Iran is prepared to end the war if it receives guarantees [1].
Despite the risk-on sentiment and Dollar weakness, oil prices remained elevated due to ongoing strikes and damages at Russia’s Ust-Luga Port, which could potentially endanger 45% of Russia’s export capacity, even if temporarily. Additionally, US-Israel strikes in Iran’s Qeshm Island in the Hormuz Strait contributed to the elevated oil prices [1].
MUFG’s Senior Currency Analyst Michael Wan expressed skepticism about the likelihood of a durable peace deal, citing several reasons. He noted that Iran’s President Pezeshkian’s comments are not entirely new and emphasized the complexity of ending the war on mutually agreeable terms. Wan also highlighted that the power structure in Iran is dominated by a more hardline regime, specifically the Iran Revolutionary Guards, who view the Strait of Hormuz as a strategic leverage point. Furthermore, Wan questioned the stability of a scenario in which the US unilaterally leaves the Middle East, given the involvement of other regional actors and concerns about Iran’s nuclear capabilities [1].
Wan advised caution in market positioning, noting that China’s potential diplomatic involvement could play a significant role in how the situation evolves. He underscored the broader geopolitical risks for Asian currencies and the Dollar, suggesting that while markets have rallied, the underlying uncertainties warrant a cautious approach [1].
CONCLUSION
Asian currencies have rebounded on improved risk sentiment driven by US-Iran peace prospects, but MUFG warns that geopolitical uncertainties and elevated oil prices persist. Analysts recommend cautious positioning, as the path to a durable peace deal remains unclear and China’s diplomatic role could be pivotal. The market takeaway is one of cautious optimism tempered by ongoing risks.