Asian Currencies Stay Muted as Dollar Holds Firm Amid Iran Uncertainty

Asian currencies remained largely subdued on Thursday as the U.S. dollar maintained its strength, with investors navigating mixed signals surrounding ongoing Middle East peace efforts. The U.S. Dollar Index held steady during Asian trading hours, extending gains from the previous two sessions driven by continued safe-haven demand. Dollar Index Futures also traded flat as of 00:20 ET.

Markets remained on edge as Iran confirmed it was reviewing a U.S. peace proposal but stopped short of formal acceptance or outright rejection. Tehran publicly denied engaging in direct negotiations with Washington and signaled that significant differences remain unresolved. This ambiguity kept traders cautious, with oil markets remaining relatively quiet throughout the session.

Analysts at MUFG warned that without credible de-escalation or a restoration of normal energy flows through the Strait of Hormuz, elevated oil prices and rising U.S. Treasury yields are likely to keep the dollar well-supported. They also noted that Brent crude prices, though slightly off recent peaks, remain above $100 per barrel, continuing to tilt global inflation risks to the upside and leaving oil-importing Asian economies particularly exposed.

Across the region, currency pairs traded within narrow ranges as investors avoided large positions. The Japanese yen was flat against the dollar, while the South Korean won slipped marginally. The Indian rupee weakened further, with the USD/INR pair climbing 0.3% to 94.15, hovering just below its record high of 94.20 from the prior session. The Chinese yuan and Singapore dollar saw minimal movement, while the Australian dollar edged slightly higher.

Beyond geopolitics, currency markets continued to be shaped by expectations of a prolonged period of elevated U.S. interest rates. The prospect of a higher-for-longer Fed policy stance reinforced the dollar's appeal and capped potential gains across Asian foreign exchange markets.