Markets in Asia saw the U.S. dollar trade just below recent peaks on Tuesday as market participants counted down to a U.S. deadline for Iran to reopen the Persian Gulf to shipping or risk strikes on its infrastructure. The prospect of further escalation in the Middle East - and the prior closure of the Strait of Hormuz, a crucial energy chokepoint - has lifted energy prices and supported demand for dollars as a safe haven.
Despite dollar strength, some traders said hopes for a diplomatic outcome had limited an even stronger bid through the Easter period. There were few, if any, large dollar sellers visible as investors awaited U.S. President Donald Trump's 8 p.m. Eastern Time (midnight GMT) deadline.
Currency moves were evident across Asia. The Japanese yen traded at 159.67 to the dollar, remaining close to multi-decade lows and the levels that prompted intervention in 2024. The euro fetched $1.1539, while sterling changed hands at $1.3235 - both a little above multi-month lows reached in late March.
Brent Donnelly, president at Spectra Markets, summed up the market stance: "(The) market (is) long USD in case of further escalation, but stocks, gold and CNH trade well and put a lid on dollar gains." He added that confident predictions were difficult and that traders were awaiting 8 p.m. to assess what sorts of strikes might be launched by Iran and U.S./Israel in the meantime.
President Trump on Monday said Iran could be "taken out" in one night and that "that night might be tomorrow night." He pledged to destroy Iranian power plants and bridges, and dismissed concerns that such moves could be considered a war crime or could alienate Iran's population.
Iran has rejected a ceasefire and said a permanent end to the war was required. In the past day Israel claimed responsibility for the death of an Iranian intelligence chief and for an attack on a petrochemical plant in southern Iran.
Other currencies that had weakened as strikes on Middle Eastern energy infrastructure intensified at the end of March showed tentative improvement. The Australian dollar rose to $0.6917 and the New Zealand dollar to $0.5714, though trading remained cautious. The South Korean won stayed on the weak side of 1,500 per dollar - a level typically seen only around major crises in past decades.
Indonesia's rupiah hit a record low on Monday. China's yuan was steady in offshore trade.
Analysts at the Commonwealth Bank of Australia noted that while optimism over a U.S. exit from the Iran conflict could allow the dollar to ease somewhat in the near term, the situation involves three participants - the U.S., Israel and Iran - and what matters for the global economy and currencies is whether the Strait of Hormuz is open. They observed that the U.S. ending its involvement would not, by itself, reopen the Strait.
Market context and implications
- Energy prices remain elevated against the backdrop of Gulf disruptions, keeping safe-haven demand for the dollar intact.
- Liquidity was thin ahead of the U.S. 8 p.m. Eastern Time deadline, leaving markets vulnerable to sharp moves if strikes are launched.
- Major Asian currencies and commodity-linked FX pairs showed mixed moves, reflecting both the risk premium from the conflict and pockets of recovery as traders weighed the odds of de-escalation.