In New York foreign exchange trading on the 1st, EUR/USD struggled to gain upward momentum. Reports of U.S. military strikes on Iranian targets sent crude oil futures soaring, and concerns over resurgent inflation pushed U.S. long-term interest rates higher. With equity markets trading soft, buying of the dollar as a safe-haven asset in times of crisis gained the upper hand, weighing on the euro.
As of 2:00 a.m., EUR/USD stood at $1.1586, down roughly $0.0011 from $1.1597 at midnight, reflecting a weaker euro and stronger dollar. When reports emerged that the U.S. Air Force was striking Iranian targets around the Strait of Hormuz, WTI crude oil futures surged nearly 5% from the previous day’s close. This triggered a rise in U.S. long-term interest rates, prompting dollar buying. EUR/USD was pushed down to an intraday low of $1.1585.
Meanwhile, dollar-yen maintained firm footing. At 2:00 a.m., the pair traded at 160.16 yen, up about 9 sen from 160.07 yen at midnight. Although U.S. Treasury Secretary Bessent’s stance was interpreted as a warning against yen depreciation, rising U.S. interest rates driven by higher oil prices supported the dollar, with the pair edging up to 160.18 yen. Even as Middle East tensions escalate, dollar demand backed by the U.S.-Japan interest rate differential remains resilient, capping yen upside.
EUR/JPY traded at 185.56 yen as of 2:00 a.m., down about 7 sen from 185.63 yen at midnight, reflecting euro weakness. Caught between the firmness of dollar-yen and the softness of EUR/USD, the cross traded without clear direction in the mid-185 yen range.
Key Currency Ranges for the Day
| Currency Pair | Reference Range |
|---|---|
| Dollar-yen | 159.64 – 160.21 yen |
| EUR/USD | $1.1585 – $1.1625 |
| EUR/JPY | 185.40 – 185.72 yen |
Note: Ranges reflect trading activity on the 1st up to the current session
In Tokyo trading, dollar-yen initially dipped to the 159.70 yen level in early morning before buybacks lifted it to 159.84 yen, showing a lack of clear direction. In the previous day’s overseas session, the dollar saw buying on the back of higher oil prices and rising U.S. interest rates, but month-end dollar selling had been dominant. As trading entered the 1st, dollar buybacks emerged and EUR/USD turned soft.
With geopolitical risks in the Middle East escalating, rising oil prices are pushing up inflation expectations, and the view that the U.S. Federal Reserve may slow its pace of monetary easing is providing a supportive backdrop for the dollar. On the other hand, Treasury Secretary Bessent’s apparent warning against yen weakness leaves some caution about aggressive dollar-yen upside.
Among market participants, there is a growing consensus that developments in the Middle East and oil price trends will dictate near-term currency market direction. In particular, if military action around the Strait of Hormuz becomes prolonged, concerns over crude oil supply could intensify further, potentially accelerating dollar buying through heightened inflationary pressure. Conversely, if risk-off sentiment strengthens, yen buying as a safe-haven asset could weigh on dollar-yen in certain scenarios.
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