[MARKET ANALYSIS] JPY gains and high-beta FX lags with the risk tone cautious amid US-Iran talks

• DXY is modestly firmer after finding support around the 97.50 mark overnight before attempting to recoup some of yesterday's losses, with macro newsflow on the lighter side as US-Iran nuclear talks get underway. President Trump has threatened strikes if no nuclear deal is reached, while Iran rejects halting uranium enrichment but signals possible concessions; the US delegation will include envoy Witkoff and Kushner, and the Iranian side is being led by Foreign Minister Araghchi. On the data front, the Chicago Fed will release its labour market indicators (its’ January update had the unemployment rate forecast at 4.36%, vs 4.3% in the official data); weekly jobless claims are seen at 215k from 206k; continuing claims (which coincide with the traditional BLS survey window for the February jobs report) are seen at 1.86mln from 1.869mln. DXY currently trades within a 97.49-97.72 range, vs Wednesday's 97.62-98.00 parameter.
• JPY is the current outperformer as USD/JPY continued to pull back overnight after climbing to its best levels in over two weeks yesterday following the Takaichi government's reflationist picks for the BoJ board. The pair was not helped by the lack of fresh drivers and the absence of tier-1 data from Japan, while there were comments from BoJ Governor Ueda, who reiterated the hiking bias, and hawkish dissenter Takata also stated that they must conduct further rate hikes in a gradual manner. On a macro front, traders will be eyeing the US-Iran talks for any geopolitically induced price action.
• GBP lags its peers and takes a breather after advancing in tandem with high-beta FX. Newsflow for the UK has been on the lighter side, with price action fitting with the subdued/cautious tone. UK focus will likely be on the Gorton and Denton by-election: analysts suggest that a heavy defeat for the ruling Labour Party could trigger volatility in Sterling. Some suggest a loss in what has been a safe Labour seat for nearly 100 years could re-ignite speculation regarding UK PM Starmer's leadership.
• EUR is flat and little changed with catalysts for the single currency light as the pair hovers around 1.1800 in a 1.1801-1.1829 range.
• Antipodeans are subdued following the recent outperformance that was facilitated by their high-beta statuses. Overnight, quarterly capex data from Australia topped forecasts, which feeds into next week's GDP release.

The cautious risk tone linked to US-Iran talks is influencing currency movements, particularly benefitting the JPY while high-beta FX currencies lag. The JPY outperformance suggests a flight to safety amid geopolitical uncertainty, hinting at potential volatility if negotiations falter. Meanwhile, the muted movement in GBP and EUR reflects a broader market sentiment as traders remain risk-averse, with attention now shifting toward any developments from the talks that could impact market dynamics.