The U.S. dollar posted limited gains during Tuesday’s trading, supported by improved risk appetite among investors and weaker demand for safe haven assets, after Washington confirmed that the ceasefire with Tehran remains in place despite elevated tensions around the Strait of Hormuz.
Meanwhile, the Japanese yen continued to weaken against the dollar, despite last week’s sharp rebound that was supported by possible intervention from Japanese authorities in the foreign exchange market. The yen has become a key focus in currency trading, especially as USD JPY approaches the sensitive 160 level, an area Tokyo appears unwilling to allow the pair to break easily this year.
The dollar index, which measures the performance of the U.S. currency against a basket of six major currencies, rose slightly by 0.1% to 98.45. The yen traded near 157.89 per dollar, after strengthening by more than 2% to 156.58 during last Thursday’s session.
Currency market estimates suggest that Japanese authorities may have already intervened to support the yen, in what would be the first such move in two years. According to money market data, Tokyo may have spent up to 5.48 trillion yen, equivalent to around 35 billion dollars, on yen purchases last week. Comments from Japanese Finance Minister Satsuki Katayama also carried a clear message to yen sellers, indicating that authorities remain ready to act again if needed.
On the Middle East front, the dollar had benefited at the start of the week from renewed safe haven demand following rising tensions in the Strait of Hormuz. U.S. President Donald Trump announced an initiative called Project Freedom, aimed at facilitating the passage of commercial vessels through the strait, a vital route for nearly one fifth of global oil supplies, after recent developments caused major disruption to shipping traffic.
Iran responded by launching missiles toward U.S. destroyers approaching the strait, claiming that one had been hit. U.S. Central Command denied the claim, confirming that no ships were struck and that two U.S. commercial vessels had successfully crossed the strait.
In a separate development, the United Arab Emirates announced that an Iranian missile and drone attack caused a fire at a major oil trading and storage hub in Fujairah, adding further sensitivity to the region’s energy and security outlook.
However, Washington’s tone on Tuesday helped calm markets somewhat, after confirming that Project Freedom is limited to securing commercial passage and is not aimed at military escalation. U.S. Secretary of War Pete Hegseth stressed that the operation is defensive, temporary, and limited in scope, and that U.S. forces are not seeking direct confrontation or entry into Iranian waters or airspace. He also confirmed that a safe lane exists for commercial ships and that the truce with Iran is not over.
Iranian Foreign Minister Abbas Araghchi warned that military action would not resolve the Hormuz crisis, while also pointing to progress in talks taking place in Pakistan, which helped ease market concerns.
Away from geopolitics, investors followed important U.S. economic data ahead of the April nonfarm payrolls report. JOLTS data showed 6.866 million job openings in March, slightly above market expectations of 6.850 million, but below February’s reading of 6.922 million. This points to a gradual slowdown in labor market momentum without clear signs of sharp weakness.
ISM data also showed that the U.S. services sector continued to expand in April, with the headline index at 53.6 compared with expectations of 53.7 and a previous reading of 54.0. Although the sector remained in expansion territory, growth slowed slightly from the previous month, while the prices paid index held steady at 70.7, below fears of a larger increase driven by higher oil prices.
In major currency markets, the Australian dollar reversed its losses and rose around 0.3% to 0.7187, supported by the Reserve Bank of Australia’s decision to raise interest rates for a third consecutive meeting. The bank raised its inflation forecasts while lowering its economic growth outlook, confirming that inflation is likely to remain above the 2% to 3% target range for some time, especially with the impact of higher fuel prices and Middle East tensions.
In Europe, the euro rose by 0.1% to 1.1698, while the British pound gained roughly the same percentage to 1.3549, as markets continued to balance geopolitical tensions, U.S. economic data, and central bank expectations in currency pricing.
As for sterling, it still lacks strong independent momentum despite its limited resilience against the dollar. The pound’s movement remains mainly tied to the strength of the U.S. currency and energy prices, alongside the Bank of England’s position as it tries to balance high inflation with slower economic growth, leaving sterling’s gains limited for now.
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