The US dollar continued its decline on Thursday as hopes grew for de-escalation in the war between Iran and the United States, supporting oil-linked currencies, while Tokyo resumed verbal interventions to support the yen, prompting speculators to act cautiously.
US President Donald Trump had predicted a quick end to the war, while Tehran is reviewing a US peace proposal that Reuters said could formally end the conflict while leaving some key issues unresolved, including Washingtons demand that Iran suspend its nuclear program and reopen the Strait of Hormuz.
However, market movements on Thursday were calmer compared to Wednesdays session, when the latest reports regarding the new proposals emerged.
The euro rose by 0.1% to $1.1763, after gains of 0.47% on Wednesday, while the British pound climbed 0.16% to $1.3615 after rising 0.4% in the previous session.
Nick Rees, head of macro strategy at Monex Europe, said:
Everyone remains heavily focused on the Middle East and the course of negotiations, but the reality is that we do not know what will happen, and markets reflect that the easiest option right now is to wait and see.
Oil prices also continued to show signs of possible de-escalation that could allow Gulf exports to resume, with June Brent crude trading at $98.6 per barrel, down from recent highs but still well above levels seen before the outbreak of the war.
The Japanese yen recorded a slight rise to 156.21 per dollar after posting strong gains on Wednesday amid speculation that Japanese authorities had intervened again in markets to support the local currency.
Atsushi Mimura, Japans top currency diplomat, said on Thursday that the country is not constrained regarding intervention in the foreign exchange market.
US Treasury Secretary Scott Bessent is scheduled to meet Japanese Prime Minister Sanae Takaichi next week, while Nikkei reported that the talks will include discussions on curbing speculation against the yen, alongside other issues.
Sources had previously told Reuters that Japanese authorities intervened last Thursday, with money market data indicating that they sold around $35 billion to support the yen. Since then, markets have witnessed three sudden jumps in the Japanese currency through Wednesdays session.
Despite this, analysts do not expect yen strength to continue for long.
Masahiko Loo, senior fixed income strategist at State Street Investment Management, said:
Without stronger action from the Bank of Japan through consecutive interest rate hikes to address its lag behind the monetary policy curve, the yen is likely to remain weak in the near term.
He added that repeated interventions increase the chances of broader policy measures during the period between June and July, in line with the scenario seen in markets at the end of 2024.
Elsewhere, the Norwegian krone rose after Norways central bank raised interest rates to 4.25% from 4%, warning that inflation remains too high. The dollar fell 0.6% to 9.249 kroner, while the euro declined 0.4% to 10.878 kroner.
The Australian dollar, which is sensitive to risk sentiment, also rose by 0.3% to $0.7242, remaining near the four-year high recorded on Wednesday.
Meanwhile, the Swedish krona posted slight gains to 10.846 against the euro and 9.21 against the dollar after Swedens central bank indicated that inflation risks stemming from the Middle East war have increased somewhat, despite keeping interest rates unchanged at 1.75%, as expected.