Asian Currencies Hold Steady as Middle East Tensions Offset Weaker US Dollar

Asian currencies traded in tight ranges on Thursday as a weaker U.S. dollar was balanced by growing investor caution over the escalating Middle East conflict, limiting demand for risk-sensitive regional assets. Market...

Asian currencies traded in tight ranges on Thursday as a weaker U.S. dollar was balanced by growing investor caution over the escalating Middle East conflict, limiting demand for risk-sensitive regional assets. Market sentiment remained fragile after the United States launched a fifth straight day of strikes on Iranian military targets, while Tehran reiterated that control of the Strait of Hormuz remains central to its security strategy. The developments raised fresh concerns over potential disruptions to global oil supplies and kept investors cautious despite the softer dollar.

The U.S. Dollar Index hovered near 100.5, close to its lowest level in nearly a month, after weaker-than-expected U.S. consumer and producer inflation data strengthened expectations that the Federal Reserve will leave interest rates unchanged at its upcoming meeting. South Korea’s won saw little movement after the Bank of Korea raised its benchmark interest rate by 25 basis points to 2.75%, marking its first rate hike in three and a half years. While the central bank signaled the possibility of further tightening to combat inflation, the currency gained limited support as foreign selling of Korean technology stocks and geopolitical uncertainty continued to weigh on sentiment.

Japan’s yen also remained under close watch. The USD/JPY pair edged lower to around 162.1 as traders monitored the possibility of currency intervention following recent remarks from Finance Minister Satsuki Katayama regarding potential changes to Government Pension Investment Fund asset allocations. The comments added to speculation that authorities are increasingly concerned about the yen’s prolonged weakness.

Elsewhere, the Australian and New Zealand dollars weakened slightly against the greenback after recent gains. China’s yuan remained largely stable despite the softer dollar. The USD/CNY pair held near 6.77, while the offshore yuan also showed limited movement after the People’s Bank of China set its daily midpoint at the strongest level since April.

Recent comments from PBOC Deputy Governor Zou Lan emphasized a preference for a more flexible, market-driven exchange rate rather than sustained yuan appreciation. China’s economy grew 4.3% year-on-year in the second quarter, missing expectations and reinforcing calls for additional policy support. Investors are now focused on upcoming U.S. retail sales, weekly jobless claims, and further developments in the Middle East for fresh direction in currency markets.