Markets weigh optimism over a potential US-Iran agreement against hawkish Federal Reserve expectations, capping USD/JPY volatility.
The USD/JPY pair remained confined to a narrow range as investors balanced optimism over a potential US-Iran deal with lingering concerns about Federal Reserve policy. Geopolitical tensions eased slightly, though Iran’s Islamic Revolutionary Guard Corps (IRGC) shot down a US MQ-9 drone, citing airspace violations and warning of retaliation for any ceasefire breaches.
Earlier, oil prices dipped nearly 5% on hopes of reduced supply disruptions, while the Indian Rupee recovered losses on lower crude costs. The European Central Bank (ECB) reinforced expectations of a June rate hike, with policymakers indicating further moves would depend on incoming data over the summer.
FX markets showed muted reaction, with traders awaiting clearer signals on both the geopolitical and monetary policy fronts. ECB’s Isabel Schnabel reiterated the need for a June hike, though she stopped short of committing to additional tightening beyond that.