The US dollar stabilized during Tuesdays trading, as markets await developments in the war related to Iran, while the Japanese yen maintained its stability in quiet trading, following sharp gains last week amid suspicions of intervention from Tokyo to support it.

The ceasefire in the Middle East has come under renewed doubt after the United States and Iran launched new attacks as part of the conflict over control of the Strait of Hormuz, amid conflicting reports about ship movements through the strait in recent days.

The dollar index, which measures the performance of the US currency against a basket of six major currencies, held steady at 98.44 points, after rising by 0.3% on Monday. The euro stood at $1.1691, while the British pound recorded $1.3538.

Jane Foley said: I think the market is well aware that the flow of news can change very quickly, and that things could move in either direction, which is why we are seeing a state of anticipation and caution.

Meanwhile, the Australian dollar edged lower after the central bank raised interest rates, as expected, for the third consecutive meeting in an attempt to curb inflation, recording $0.7154 in its latest trading, down by 0.18% during the day.

The central bank sharply raised its inflation forecasts, while lowering its projections for economic growth and employment, due to the global energy price shock.

Matt Simpson said that the Reserve Bank of Australia adopted a hawkish stance, but is still leaving the door open for the possibility of one or two additional interest rate hikes by December.

Traders closely monitor the yen

The yen recorded 157.19 against the dollar, near its strongest levels in two months, after a wave of sharp gains since Thursday, when sources reported that Japanese authorities intervened in the currency market to halt a sharp decline in the currency.

Data last week showed that Tokyo spent about $35 billion to support the yen, although analysts believe that this move is unlikely to provide long-term support for the currency.

The yen has struggled for years, affected by extremely low interest rates in Japan and the widening gap with higher-yielding advanced economies, in addition to growing fiscal concerns, while the energy shock resulting from the war has increased pressure on it.

Deepali Bhargava said that the suspected intervention only reset the dollar/yen trading range in the short term, without changing the structural pressures driving the selling of the yen.

A temporary rise in the yen on Monday sparked speculation of new intervention from Japan, especially after official warnings last week during the Golden Week holiday.

Charu Chanana said that markets are aware of the political sensitivity of the 160 level against the dollar, meaning that limited moves in thin trading could lead to large short-covering operations.

She added: In the near term, the dollar/yen pair may remain volatile within a broader range between 155 and 160, with the possibility of authorities intervening to prevent a clear break of the 160 level rather than seeking to permanently reverse the yens direction.

The fate of the yen is also linked to oil prices and the speed of the end of the war in the Middle East.

Vasu Menon said: A lot depends on oil prices, and if they rise or remain at elevated levels, the yen could come under pressure again.