A series of fresh US military strikes on Iran, targeting sites deemed a threat to US forces and commercial maritime traffic, has intensified geopolitical tensions in the Middle East and driven a broad-based rally in the US Dollar against major currencies [1][2][3]. According to US officials cited by Reuters, American forces also intercepted and shot down multiple Iranian drones in the Strait of Hormuz, further escalating the situation [2][3]. President Donald Trump stated he is not satisfied with the terms of a deal with Iran and will not be rushed into an agreement, dampening hopes for a diplomatic resolution to the three-month-old conflict [1][2][3].
The British Pound (GBP) softened to near 1.3400 against the US Dollar (USD) during Asian trading hours on Thursday, as traders sought the safety of the Greenback amid rising Middle East tensions [1]. Market participants are also cautious ahead of the US April Personal Consumption Expenditures (PCE) Price Index release. Additionally, expectations for a Bank of England rate hike have diminished following softer UK inflation data and an unexpected rise in the unemployment rate to 5.0% in April, with gilt yields experiencing their largest weekly drop since late 2023 [1].
The Japanese Yen (JPY) hit a four-week low versus the USD, with the USD/JPY pair reaching around 159.60, as concerns mount over Japan's economic vulnerability to disruptions in energy supplies through the Strait of Hormuz [2]. Shipping traffic through the waterway has drastically reduced due to Iranian restrictions and a US naval blockade, further undermining the JPY [2]. While the firmer USD is supported by safe-haven flows and expectations of a potential US Federal Reserve rate hike in 2026, speculation about possible intervention by Japanese authorities has limited further JPY losses [2].
The Canadian Dollar (CAD) also struggled, with the USD/CAD pair trading near the mid-1.3800s, its highest level since April 13 [3]. The Greenback's strength is attributed to persistent geopolitical uncertainties and revived inflationary concerns, which have bolstered bets for a Fed rate hike later this year [3]. However, a modest recovery in crude oil prices, following renewed hostilities, has provided some support to the commodity-linked CAD and limited its downside [3]. Across all markets, traders are awaiting the release of key US macroeconomic data, including the PCE Price Index and preliminary GDP figures, before making further moves [1][2][3].
CONCLUSION
Heightened US-Iran tensions and fresh US military action have driven safe-haven flows into the US Dollar, pressuring the British Pound, Japanese Yen, and Canadian Dollar. Market participants are also recalibrating interest rate expectations and awaiting key US economic data for further direction. The prevailing risk-off sentiment and geopolitical uncertainty are likely to keep the USD supported in the near term.