A wave of geopolitical uncertainty stemming from renewed hostilities between the US and Iran has driven safe-haven demand for the US Dollar (USD), resulting in broad-based weakness across major currencies including the New Zealand Dollar (NZD), Japanese Yen (JPY), Australian Dollar (AUD), and British Pound (GBP) during early Asian trading hours on Monday [1][2][3][4]. US President Donald Trump and Iran both rejected each other's peace proposals for ending the war and reopening the Strait of Hormuz, with Trump labeling Iran's response as 'totally unacceptable' [1][2][3][4]. The Wall Street Journal reported that Iran refused US demands to dismantle its nuclear facilities and suspend uranium enrichment for 20 years [2]. Iranian state television noted that Tehran's proposal emphasized ending the conflict across all fronts and securing shipping routes, but did not specify details on reopening the key waterway [3].
The heightened tensions have led to a rise in crude oil prices and revived inflationary concerns, further supporting the USD and US Treasury yields [2][3][4]. The NZD/USD pair traded near 0.5950 in negative territory, showing little reaction to hotter-than-expected Chinese inflation data, as the Kiwi remained pressured by the stronger Greenback [1]. The USD/JPY pair reclaimed the 157.00 mark, with the JPY's losses limited by potential intervention from Japanese authorities and expectations of a Bank of Japan rate hike following an upward revision of inflation forecasts and a 6-3 hawkish vote split [2]. The AUD/USD pair remained in negative territory around 0.7240, weighed down by risk aversion and the anticipation of China's CPI data, which was expected to rise 0.8% YoY in April [3]. The GBP/USD pair rebounded to the 1.3600 mark after an initial bearish gap, but further gains were capped by USD strength and ongoing geopolitical risks [4].
US economic data also played a role in market sentiment. The US Nonfarm Payrolls (NFP) report released on Friday showed an increase of 115K in April, down from March's 185K but above the market forecast of 62K, with the unemployment rate steady at 4.3% [3][4]. This data reinforced expectations for a hawkish US Federal Reserve stance, supporting the USD and US Treasury yields [2][3][4].
Looking ahead, analysts note that the market remains sensitive to further geopolitical developments and central bank policy signals. In Japan, top currency diplomat Atsushi Mimura stated there are no constraints on intervention frequency, and the BoJ's hawkish tilt could limit further USD/JPY gains [2]. In the UK, the Bank of England signaled that rate hikes could be appropriate if inflation persists, providing some support to the GBP, though the mixed backdrop and lack of major economic data leave the pair vulnerable to USD moves and geopolitical headlines [4]. For the AUD and NZD, the health of the Chinese economy remains a key factor, but risk-off sentiment currently dominates [1][3].
CONCLUSION
Geopolitical tensions between the US and Iran have fueled safe-haven demand for the US Dollar, pressuring major currencies and supporting US Treasury yields. While central bank policy signals and economic data offer some counterbalance, the market remains highly sensitive to further developments in the Middle East and ongoing risk sentiment.