Log In Get Started
Currencies April 1, 2026 12:04 AM

Asian FX Steadies as U.S. Signals Possible Iran Drawdown; China PMI Flags Rising Input Costs

Risk appetite lifts regional currencies while Chinese factory data shows cost pressures tied to elevated oil prices

By Avery Klein

Most Asian currencies held onto gains on Wednesday as the U.S. dollar softened and risk sentiment improved following comments from U.S. leadership about a potential near-term end to the military campaign involving Iran. Markets reacted cautiously, however, after reports suggested a U.S. exit might leave strategic chokepoints such as the Strait of Hormuz at risk. Data from China showed factory activity expanding for a fourth month but at a slower pace, while input costs rose sharply, highlighting an inflationary headwind for manufacturers.

Asian FX Steadies as U.S. Signals Possible Iran Drawdown; China PMI Flags Rising Input Costs

Key Points

  • U.S. political comments suggesting a potential end to the military campaign with Iran boosted risk sentiment and helped Asian currencies hold recent gains; regional equities also rose.
  • China's manufacturing PMI expanded for a fourth month but slowed and undershot forecasts; input costs climbed sharply, indicating cost pressures for the manufacturing sector and potential inflationary implications.
  • Despite improving sentiment, reports that a U.S. withdrawal could occur even if the Strait of Hormuz remains largely closed highlight ongoing risks to energy and trade flows, which bear on energy and shipping sectors as well as FX and equities.

Asian currencies largely consolidated Wednesday after strong advances in the previous session, while the U.S. dollar slipped as investors grew slightly more willing to take on risk amid signals that military operations involving Iran could wind down in the near term.

The U.S. Dollar Index eased about 0.1% in Asian trading, following a 0.6% decline overnight. U.S. Dollar Index futures were also lower by roughly 0.1% as of 23:52 ET (03:52 GMT).

Geopolitical comments lift risk appetite but leave risks in place

Market participants reacted to remarks from U.S. President Donald Trump that Washington could end its military campaign against Iran within "two to three weeks," a development that helped revive appetite for risk assets and supported gains in several Asian equity markets on Wednesday.

Despite the more optimistic tone, caution persisted. A Wall Street Journal report said President Trump was prepared to end the U.S. military campaign even if the Strait of Hormuz remained largely closed, a detail that underscores continuing threats to global trade flows and energy supplies. Analysts at MUFG cautioned that a sustainable peace remains far from assured, citing unresolved areas of contention including Iran's internal power arrangements, the strategic leverage associated with the Strait of Hormuz, and broader regional tensions. MUFG warned that even a U.S. withdrawal could leave behind an "extremely unstable equilibrium."

Currency movements across Asia

Across Asian FX markets, moves were mostly modest on Wednesday. The Japanese yen was steady after USD/JPY had fallen 0.6% in the prior session. South Korea's won saw USD/KRW tick up roughly 0.2% after a 0.7% decline overnight. India's rupee reversed some of the prior session's losses, with USD/INR climbing about 0.2% to 93.68 rupees following a 1% drop on Tuesday; the currency had reached a record low of 95.22 rupees in the earlier session.

The Chinese yuan's onshore USD/CNY rate was largely unchanged, while the offshore USD/CNH moved down approximately 0.2%. Singapore's dollar held steady against the dollar, and the Australian dollar gained about 0.2% on Wednesday.

China factory PMI highlights cost pressure

New manufacturing survey data from China showed activity expanded for a fourth straight month in March, but the pace of growth slowed and the reading missed expectations. The survey also signalled sharply rising input costs, noting the quickest increase in input prices since March 2022. Analysts attributed part of that rise in costs to higher oil prices connected to the Middle East situation, which is feeding through into manufacturers' cost bases.

What markets are watching next

Investors are looking ahead to forthcoming U.S. economic releases, including the nonfarm payrolls report later in the week, for additional guidance on the outlook for U.S. monetary policy and near-term currency market direction.

Risks

  • Closure or restricted use of the Strait of Hormuz could continue to disrupt global trade and energy supply, affecting energy markets and economies reliant on oil imports.
  • Key political and structural factors within Iran and wider regional tensions mean that a durable peace is uncertain; financial markets may face renewed volatility if diplomatic progress stalls.
  • Rising input costs in China, spurred in part by elevated oil prices, create a margin squeeze for manufacturers and could weigh on corporate profitability and industrial activity.

More from Currencies

Yen posts rapid, fleeting gains against dollar, feeding intervention talk May 15, 2026 Pound Falls as Labour Turmoil and Energy-Driven Inflation Pressures Hit Markets May 15, 2026 Bank of America Unwinds Short on Pound as Political Noise Fuels Recent Drop May 15, 2026 Asia FX Weakens as Dollar Strengthens; Indian Rupee Slips to New Record Near 96 per Dollar May 14, 2026 Pound under pressure as political noise mutes reaction to solid Q1 GDP May 14, 2026