In response to Israel’s limited-scale attack on Iran overnight, the safe-haven Swiss franc and Japanese yen initially surged but later tempered their gains as Tehran indicated it does not plan to retaliate. The U.S. dollar fell against the Swiss franc to 0.9088 franc and dropped as low as 0.9011 franc following news of Israel’s actions. Against the yen, the dollar slid to 153.59 yen after Israel’s move before recovering slightly to 154.57 yen. Iranian media reported a limited number of explosions in response to the attack, and officials stated that there are no plans for retaliation against Israel.
Markets reacted sharply to the news, with a sell-off in risk assets, a jump in oil and gold prices, and a rally in U.S. Treasuries and safe-haven currencies. While the U.S. dollar index initially rose, it later gave up its gains to stand down at 105.92 on the day. Despite the geopolitical tension, the broader focus of investors remains on the Federal Reserve’s interest rate policies and the strength of the U.S. dollar based on recent economic data. Asian currencies have faced pressure, prompting finance chiefs in the United States, Japan, and South Korea to issue a rare joint warning over declining exchange rates.
The Bank of Japan Governor’s comments about potential interest rate hikes based on currency movements have raised concerns about the timing of the next policy shift. Data showing Japanese core inflation slowing to 2.6% in March, above the central bank’s 2% target, further complicates the monetary policy outlook. As geopolitical tensions continue to fluctuate, market participants remain cautious about the implications for global currencies and financial markets.
