[MARKET ANALYSIS] DXY firmer amidst geopolitical flare ups, JPY reacts to jawboning

DXY is incrementally firmer, and is currently trading within a 99.90-100.04 range. Focus remains on the geopolitical situation after US President Trump announced a 10-day pause in planned strikes on energy plants, adding that talks with Iran are going very well. Though WSJ reported that the Iranians are demanding that the US dial back on demands made in the 15-point ceasefire plan. Earlier today, there was a barrage of Iranian attacks on several Gulf countries, and interestingly, the IRGC announced that the Strait of Hormuz is shut, having turned away three ships of different nationalities.
The tense situation in the Middle East, coupled with China launching a trade probe on the US, led to some fleeting upside in the USD; it also took a leg beyond the 100.00 mark on reports that explosions were heard at US bases in a number of Gulf countries. Now markets will await any updates heading into the weekend. Perhaps a bit redundant given the ongoing conflict, but attention will also be on US data (UoM Finals) and Fed speak.
G10s are mixed against the USD, with some mild strength seen in the Antipodeans, whilst the CHF lags a touch. The former appears to be a slight rebound following the hefty losses seen in the prior session. EUR and GBP are both incrementally lower against the USD this morning. Price action is in stasis as traders await any definitive developments heading into the weekend. There was some data for both pairs to digest this morning, but ultimately had little impact. Spanish inflation (Mar) rose at its fastest pace since 2024, amidst the Iranian war (but did miss expectations), whilst the UK’s Retail Sales topped expectations – though the survey period was before the Iranian war had begun.
Elsewhere, the JPY is essentially flat against the USD, though price action has been volatile this morning for a number of factors. Overnight, Japanese Finance Minister Katayama provided some jawboning, which helped to strengthen the JPY. She suggested that she will take decisive steps on forex, including bold actions. USD/JPY troughed at 159.45 as markets digested her comments, though the pair rebounded off lows in the APAC session. The pair then took a leg higher as the European session got underway to make a peak at 159.97, approaching the touted “line in the sand” at 160.00. Some traders may see physical intervention as ineffective at this stage given the turbulent geopolitical environment, which could push the pair beyond the 160.00 mark. Moreover, ING opines that recent pressure in USTs may lead to less support from the US Treasury to conduct rate checks/intervention, given large-scale FX intervention could extend the Treasury sell-off. Elsewhere, Nikkei reported that Rengo’s second round of tallying indicates a wage increase of 5.12% (vs initial tally of 5.26%).