Currency markets saw notable moves during Asian trading hours on Thursday, driven by optimism over a potential de-escalation in the Middle East conflict and the release of key economic data. US President Donald Trump stated that the war was 'close to over,' with reports, including from Bloomberg and the Associated Press, suggesting ongoing negotiations and speculation about a possible two-week extension of a ceasefire between the US and Iran. However, uncertainty persists as Washington announced plans to deploy an additional 10,000 troops to the region, and the Strait of Hormuz remains closed, sustaining elevated energy prices and inflationary pressures [1][2][3][4].
The AUD/JPY pair traded around 113.90, remaining below 114.00 after Australia's March labor data showed the Unemployment Rate steady at 4.3%, in line with expectations, but Employment Change fell to 17.9K, below the consensus of 20K and sharply down from 48.9K in February. Consumer Inflation Expectations in Australia rose to 5.9% in April from 5.2% in March, reflecting higher oil prices. The Australian Dollar found some support from improved market sentiment tied to Middle East developments, but the Japanese Yen strengthened on speculation of possible intervention by Japanese authorities to curb currency weakness [1].
The Japanese Yen edged higher against the US Dollar, with USD/JPY dropping to the 158.70-158.65 region, near its weekly low. The Yen's gains were attributed to intervention fears and a weaker US Dollar, as the USD Index (DXY) hovered near its lowest level since early March. Hopes for a prolonged US-Iran ceasefire supported risk appetite and weighed on the USD, while concerns over the Strait of Hormuz and Japan's reliance on Middle Eastern energy imports limited further Yen appreciation [2].
The Pound Sterling (GBP/USD) rebounded to near 1.3570, supported by improved market sentiment on Middle East de-escalation hopes. Persistent closure of the Strait of Hormuz kept energy prices high, leading markets to anticipate two Bank of England rate hikes this year. The US Fed's Beige Book described economic activity as moderate, and the March US Producer Price Index rose to 4%, reinforcing expectations for a cautious Fed stance. Alberto Musalem noted that higher oil prices could keep core inflation near 3% [3].
The Euro (EUR/USD) held gains above 1.1800, buoyed by risk-on sentiment and optimism over US-Iran ceasefire talks. Falling oil prices helped ease inflation concerns, according to Adam Turnquist of LPL Financial. ECB policymakers were seen leaning toward keeping rates unchanged at the April meeting, though traders expected two quarter-point hikes this year. ECB President Christine Lagarde emphasized the need for agility in rate decisions without a clear bias toward hikes [4].
CONCLUSION
Currency markets responded positively to signs of de-escalation in the Middle East, with risk-on sentiment supporting the AUD, GBP, and EUR, while the JPY gained on intervention speculation. Persistent uncertainty over the Strait of Hormuz and inflationary pressures continue to influence central bank expectations and market positioning. Overall, the event had a high market impact, with traders closely watching diplomatic developments and upcoming economic data.