Japan, May 05 : Safe Haven Demand Lifts U.S. Currency
Global currency markets remained cautious on Tuesday as escalating tensions in the Middle East fueled investor anxiety, strengthening the U.S. dollar while the Japanese yen stayed relatively stable following suspected intervention by Tokyo authorities last week.
Fresh military strikes involving the United States and Iran in the Gulf region rattled financial markets and revived fears of a broader regional conflict. Investors shifted toward safer assets, boosting demand for the dollar and keeping risk appetite subdued across global markets.
The euro extended overnight losses and traded near $1.1693, while the British pound hovered around $1.353. The dollar index, which tracks the greenback against six major currencies, remained firm near 98.452 after posting gains in the previous session.
Market analysts said investors are closely watching geopolitical developments as fears of prolonged instability continue to dominate trading sentiment.
Strait of Hormuz Crisis Fuels Inflation Concerns
One of the key drivers behind the market uncertainty has been the disruption in the Strait of Hormuz, a crucial shipping route responsible for nearly one-fifth of global oil transportation.
The closure of the strategic waterway since the outbreak of conflict in late February has pushed crude oil prices above $100 per barrel, triggering fresh inflation worries worldwide. Brent crude futures traded around $113.8 per barrel during early Asian trading after surging sharply on Monday.
Rising energy costs have complicated the outlook for central banks already battling persistent inflation pressures.
Nick Twidale, chief market strategist at ATFX Global in Sydney, said investors have clearly shifted toward defensive positioning, although markets have not yet experienced the extreme volatility typically associated with a full-scale geopolitical escalation.
He warned that any further deterioration in the conflict could drive oil prices significantly higher and create deeper pressure on global risk assets.
Australian Dollar Steady Ahead of RBA Decision
The Australian dollar remained largely unchanged near $0.7168 as traders awaited the Reserve Bank of Australia’s latest monetary policy decision.
Markets widely expect the RBA to deliver its third consecutive interest rate increase in an effort to control inflation, which has stayed above the central bank’s 2% to 3% target range since mid-2025.
Investors are expected to closely analyze the central bank’s tone and future guidance for clues about the pace of additional tightening in the months ahead.
The inflation surge, driven partly by soaring energy prices and global supply disruptions, prompted the RBA to begin raising interest rates earlier this year.
Traders Watch for Further Yen Intervention
The Japanese yen traded near 157.22 against the U.S. dollar, remaining close to its strongest level in nearly two months after sharp gains recorded last week.
Those gains followed reports that Japanese authorities intervened heavily in currency markets to halt the yen’s steep decline. Data released last week suggested Tokyo may have spent nearly $35 billion supporting its currency.
However, analysts believe the intervention may only provide temporary relief as underlying pressures on the yen remain intact.
Japan’s currency has struggled for years due to ultra-low domestic interest rates and the growing gap between Japanese yields and those offered by other major developed economies.
The ongoing surge in oil prices has added further strain on the yen, as Japan remains heavily dependent on imported energy supplies.
Markets Remain Alert Near Critical 160 Level
Currency strategists noted that traders are particularly focused on the psychologically important 160 yen-per-dollar level, which many view as a threshold likely to trigger additional intervention from Japanese authorities.
A brief surge in the yen during Monday trading reignited speculation that Tokyo may have stepped into markets again during the Golden Week holiday period.
Charu Chanana, chief investment strategist at Saxo, said investors remain highly sensitive to movements near the 160 mark, especially during thin Asian trading conditions where sudden short-covering rallies can occur rapidly.
Analysts expect the dollar-yen pair to remain volatile in the near term, fluctuating between the 155 and 160 range as authorities attempt to prevent excessive weakness in the Japanese currency.
Oil Prices Seen as Key Driver for Yen Outlook
Market experts believe the future direction of the yen will largely depend on oil price movements and whether tensions in the Middle East begin to ease.
Vasu Menon, managing director of investment strategy at OCBC, said persistently high oil prices could once again intensify pressure on the Japanese currency, especially if energy costs continue climbing.
Investors are now closely monitoring diplomatic and military developments in the Gulf region, with financial markets expected to remain highly sensitive to any escalation in the conflict.