Federal Reserve and Iran tensions push US dollar stronger, Asian forex shows muted movement; Japanese yen stabilizes after BOJ holds rates

Investing.com - On Thursday, most Asian currencies edged higher, recovering some of the losses from the sharp decline overnight, as hot U.S. inflation data and mixed signals from the Federal Reserve boosted the dollar.

The Bank of Japan held interest rates steady as expected, stabilizing the yen, but it remains near its weakest level since mid-2024.

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Most broader Asian currencies rebounded from Wednesday night’s decline, while the dollar retreated after strong gains. The rapid escalation of the Iran war between the U.S. and Israel pushed oil prices higher, keeping regional markets tense.

Bank of Japan maintains rates, yen stabilizes near 19-month lows

The USD/JPY currency pair fell 0.1%, after a significant overnight rally, but remains close to its highest level since mid-2024.

The Bank of Japan kept the overnight lending rate at 0.75%, in line with widespread expectations, with only one of nine policymakers calling for a 25 basis point hike.

The BOJ expressed some caution over the rise in oil prices due to the Iran conflict, despite its short-term forecast of a sharp slowdown in Japanese inflation. However, it expects inflation to gradually rebound later in 2026—this trend could trigger more rate hikes in the coming months.

Aside from the BOJ, other major central banks—the Bank of England, the European Central Bank, and the Swiss National Bank—are also scheduled to hold meetings later today.

Dollar pulls back from overnight rally, Asian currencies inch higher

The dollar index and dollar futures both declined 0.3% and 0.1%, respectively, after a sharp rise on Wednesday.

The dollar’s strength was driven by U.S. February producer price inflation data, which exceeded expectations and raised concerns about a resurgence in overall inflation.

Following this, the Fed kept rates unchanged but warned that inflation could rise due to higher energy prices—this could further reduce the likelihood of rate cuts in the near future.

Chair Powell also highlighted increased uncertainty surrounding the Iran conflict.

His comments largely underscored market concerns about the ongoing Iran crisis, now in its third week. Traders worry that rising oil prices and inflation could harm the global economy and keep interest rates relatively high.

Among Asian currencies, the Chinese yuan rose 0.3% against the dollar, while the Singapore dollar fell 0.2%.

The Australian dollar performed strongly, with the AUD/USD pair rising nearly 0.4%, after February employment data far exceeded expectations despite an unexpected increase in the unemployment rate.

The Korean won declined 0.7% against the dollar, while the Indian rupee stabilized near 92.9 rupees after reaching a record high above 93 rupees overnight.

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