Asia FX steadies after sharp gains amid US-Iran ceasefire uncertainty

Most Asian currencies were little changed on Thursday after sharp gains in the previous session, as investors turned cautious over the durability of a temporary U.S.-Iran ceasefire amid renewed Middle East tensions.

The US Dollar Index dipped 0.1% after falling to a four-week low on Wednesday. US Dollar Index Futures also traded 0.1% lower as of 00:09 ET (04:09 GMT).

Israel strikes on Lebanon stoke concerns over Iran ceasefire

Israeli strikes on Lebanon intensified sharply on Wednesday, with heavy bombardments targeting Hezbollah positions.

The attacks continued even after President Donald Trump announced a two-week U.S.-Iran ceasefire on Tuesday, highlighting conflicting signals over whether Lebanon was covered under the agreement.

In response, Iran hardened its stance, saying peace talks with the U.S. would be “unreasonable” under current conditions, while reports showed that Tehran closed the Strait of Hormuz again.

The ceasefire had initially boosted risk appetite and weighed on the dollar, lifting higher-yielding Asian currencies. But uncertainty over its scope and continued military activity has clouded the outlook.

“We continue to think that given the big gaps in expectation between different parties and not just the US, the chance of a durable ceasefire and agreement remains very narrow, and as such the risk of a flare up and continued volatility is very substantial,” MUFG analysts said in a note.

The South Korean won’s USD/KRW pair edged up 0.2% after slipping 1.2% in the previous session.

The Japanese yen’s USD/JPY pair ticked up 0.1% after falling 0.7% on Wednesday.

Oil prices rise after sharp declines over the ceasefire

Oil prices rebounded more than 2% after a steep drop in the prior session, as concerns persisted over disruptions to supply through the Strait of Hormuz.

Higher crude prices tend to pressure oil-importing Asian economies and their currencies.

The Indian rupee’s USDINR rose 0.3%. The currency strengthened 0.5% against the dollar on Wednesday after the Reserve Bank of India kept its key policy rate unchanged.

The RBI reiterated its commitment to curb excessive volatility in the rupee, and described recent FX measures as temporary.

Elsewhere, the Chinese yuan’s onshore USD/CNY pair edged up 0.1%, after hitting a three-year low in the previous session.

The Australian dollar’s AUD/USD pair and the Singapore dollar’s USD/SGD pair traded flat.

Investors are now turning their attention to upcoming U.S. consumer inflation data on Friday, for further cues on the Federal Reserve’s policy path.