The Swiss franc and Japanese yen initially surged as safe-haven currencies following a limited-scale attack by Israel on Iran. However, as Iran indicated it would not retaliate, both currencies pared back some of their gains. The U.S. dollar fell against the Swiss franc and yen but still traded higher for the day, showcasing the impact of geopolitical events on currency trading.
Following the news of Israel’s attack on Iran, there was a sell-off in risk assets, causing oil and gold prices to rise while prompting a rally in safe-haven currencies and U.S. Treasuries. The U.S. dollar index initially rose but later retreated, showing that market participants were more focused on the Federal Reserve’s interest rate outlook than geopolitical tensions. This broader perspective on monetary policy has led to a surge in U.S. bond yields, boosting the dollar index.
Amidst the market fluctuations, Asian currencies have faced pressure, with finance chiefs in the U.S., Japan, and South Korea expressing concern over exchange rate declines. The Bank of Japan also hinted at a potential interest rate hike if the yen’s depreciation significantly impacts inflation. As investors remain focused on the Fed’s monetary policy decisions, the broader market picture indicates a higher interest rate environment in the U.S. despite ongoing geopolitical uncertainties.