On Thursday, both USD/JPY and GBP/USD stabilized near recent highs as escalating tensions in the Middle East, particularly around the Strait of Hormuz, influenced currency markets and oil prices. USD/JPY traded around 159.45, virtually unchanged but close to its recent peak after three consecutive bullish sessions, supported by persistent geopolitical tensions and elevated energy prices [1]. GBP/USD steadied at approximately 1.3500, with the US and Iran escalating conflict by seizing ships or oil vessels near Hormuz, and negotiations between Washington and Tehran reportedly frozen [2].
The US Dollar benefited from the inflationary impact of higher oil prices, reducing the likelihood of near-term monetary easing by the Federal Reserve. Markets are now pricing a high chance that US interest rates will remain on hold toward year-end, supporting the Greenback and underpinning the upside in USD/JPY [1]. S&P Global PMI data showed stronger-than-expected expansion in US manufacturing (rising from 52.3 to 54) and services (from 49.8 to 51.3), confirming US economic resilience despite a slight uptick in weekly Initial Jobless Claims, which came in at 214K versus forecasts of 212K [1][2].
In Japan, the Yen remains under pressure due to the country's heavy reliance on energy imports, amplifying the negative impact of rising oil prices. Expectations for monetary tightening by the Bank of Japan have been pushed back, with markets largely expecting a pause at the upcoming meeting and a potential rate hike delayed until later in the year [1]. MUFG analysts warn that the energy shock linked to Middle East tensions could continue to weigh on the Yen, while Danske Bank notes that domestic inflation in Japan remains subdued, limiting the BoJ’s room to tighten policy quickly [1]. Japanese policymakers have reiterated their vigilance regarding JPY weakness, which could cap any rapid move beyond the key 160 level [1].
In the UK, the S&P Global Composite PMI improved from 50.3 to 52, with both manufacturing and services sectors rising above the expansion threshold. The S&P Global report and CBI survey indicated that input prices are increasing, spurred by the Iran war [2]. The Bank of England is expected to hold rates unchanged at 3.75% at its next meeting, but swaps markets are pricing in a nearly 55% chance of a rate hike at the June 17 meeting and expect peak rates around 4.25% by December [2]. GBP/USD technicals show the pair trading at 1.3495, holding above key moving averages and maintaining a constructive near-term bias within a broader corrective channel [2].
Market reactions have been mixed: while oil prices retreated somewhat, easing pressure on Wall Street and allowing the S&P 500 and Nasdaq to turn positive, disappointing earnings reports from AI-related companies tempered investor sentiment [2]. The US Dollar was the strongest against the New Zealand Dollar, with a 0.51% gain, and showed minor changes against other major currencies [1].
CONCLUSION
Geopolitical tensions near the Strait of Hormuz have driven volatility in oil prices and supported the US Dollar, impacting both USD/JPY and GBP/USD. While central banks in Japan and the UK are expected to hold rates steady in the near term, market pricing suggests potential hikes later in the year. Investors remain cautious, with currency moves capped by intervention risks and technical resistance, as economic data takes a back seat to geopolitical headlines.