Most Asian currencies experienced weakness on Friday, while the dollar and the Japanese yen found support from safe-haven demand following reports of retaliatory strikes by Israel against Iran.
Sentiment towards regional currencies was dampened by ongoing warnings from Federal Reserve officials regarding prolonged higher U.S. interest rates, contributing to significant losses for most Asian currencies throughout the week.
The dollar index and dollar index futures edged higher in Asian trading, maintaining proximity to over five-month highs achieved earlier in the week. The USD/JPY pair, despite a 0.2% decline, remained near 34-year highs recorded recently.
Reports of Israeli drone strikes in Iran, Syria, and Iraq prompted inflows into the dollar and yen, as concerns over potential escalation in the Iran-Israel conflict intensified. Although initial reports indicated strikes near Iranian nuclear facilities, Iranian sources reported no damage to these sites. Nevertheless, the situation underscores geopolitical tensions in the Middle East, fueling demand for safe-haven assets and weighing on risk-driven currencies.
The Australian dollar, often viewed as a barometer of risk sentiment in Asia, weakened, with the AUD/USD pair falling 0.3% to a five-month low. Similarly, the South Korean won’s USD/KRW pair rose 0.4%, and the Singapore dollar’s USD/SGD pair advanced 0.1%. The Indian rupee’s USD/INR pair hovered near record highs above 83.5.
In addition to geopolitical concerns, hawkish comments from Federal Reserve officials further impacted Asian currencies. Several Fed officials cautioned that persistent inflationary pressures could lead to prolonged higher interest rates, with Atlanta Fed President Raphael Bostic even suggesting the possibility of rate hikes. Strong economic data from the U.S. reinforced expectations of sustained higher rates, prompting traders to scale back projections for a June interest rate cut.