The U.S. dollar climbed to a two-month high on Thursday as escalating hostilities in the Gulf region rattled global markets and strengthened demand for safe-haven assets, while the Japanese yen hovered near levels widely seen as a potential trigger for intervention.
The dollar index, which tracks the greenback against a basket of major currencies, was broadly steady at 99.46, just below the two-month peak of 99.56 reached in the previous session. The move reflects sustained investor caution amid heightened geopolitical risk and resilient U.S. economic data.
Fresh tensions in the Gulf helped drive risk-off sentiment after reports that Iranian strikes damaged infrastructure in Kuwait and injured dozens, while U.S. military action near the Strait of Hormuz added to concerns over potential disruptions to global energy supplies. Although Israel and Lebanon have agreed to a ceasefire, uncertainty over a broader regional settlement continues to underpin oil prices and support the dollar.
Market analysts say elevated energy prices are reinforcing inflation concerns globally, reducing expectations for near-term monetary easing in major economies.
“It’s hard to argue against dollar strength at this juncture,” said Francesco Pesole, currency strategist at ING, citing U.S. economic resilience and renewed geopolitical risk as key drivers of recent gains.
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On the interest rate outlook, a recent survey showed price pressures in the U.S. services sector rising to a near four-year high, reinforcing expectations that the Federal Reserve will keep rates elevated well into next year.
In Europe, the euro edged up 0.1 percent to US$1.161, with markets anticipating a European Central Bank deposit rate increase to 2.25 percent at its June 11 meeting, according to a Reuters poll. The British pound also gained 0.1 percent to US$1.343.
The Australian dollar was steady at US$0.713, after data showed the country’s trade balance returned to surplus in April.
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In Asia, attention remained focused on Japan, where the yen traded at 159.89 per dollar, after briefly weakening beyond the psychologically significant 160 level earlier in the week. The breach triggered verbal warnings from Japanese authorities, with markets viewing 160 as a key threshold for possible currency intervention.
The yen’s weakness has been driven by persistent interest rate differentials between Japan and the United States, although expectations are building that the Bank of Japan may move toward a rate hike as inflationary pressures intensify, partly due to higher energy costs linked to the Gulf conflict.
Bank of Japan Governor Kazuo Ueda has signalled growing concern over inflation risks, strengthening market expectations for tighter monetary policy in the coming months.
“The hawkish tone has strengthened further, including a clear expression of concern about behind-the-curve risk,” said Naohiko Baba, head of Japan research at Barclays, adding that a June rate hike remains in view.
In broader markets, cryptocurrencies also weakened, with Bitcoin falling to a four-month low of US$61,344 before recovering slightly to US$63,305, down 2.6 percent on the day, as risk appetite remained subdued.
Analysts say currency and asset markets are likely to remain highly sensitive to further developments in the Gulf conflict, U.S. inflation data and any signals from major central banks in the weeks ahead.
