Sterling Rises as Iran Deal Dampens Dollar Demand

Key Moments

USD/JPY traded above the mid-160.00s in Asian hours, consolidating a four-day rally to its highest level since July 2024.
Optimism over a US-Iran peace agreement tempered the impact of the Federal Reserve’s latest hawkish signal, prompting US Dollar profit-taking.
Japan’s historic BoJ rate hike and persistent intervention warnings underpinned the JPY, even as the wide US-Japan rate gap kept carry trades attractive.

Dollar-Yen Rally Stalls After Fed Lift and Iran Headlines

The USD/JPY pair held firm above the mid-160.00s during the Asian session on Thursday, consolidating gains from a four-session advance that lifted the cross to its strongest level since July 2024. The move came as the earlier upswing in the US Dollar, driven by a hawkish Federal Reserve on Wednesday and pushing the greenback to its highest level since late March, lost momentum.

Fresh optimism around a potential US-Iran peace deal weighed on the US Dollar and checked further upside in USD/JPY. At the same time, ongoing concerns about possible Japanese authorities’ intervention in the foreign exchange market offered support to the Japanese Yen and helped cap the pair.

US-Iran MoU Sparks Profit-Taking in the Dollar

US President Donald Trump and Iranian President Masoud Pezeshkian electronically signed a Memorandum of Understanding aimed at ending hostilities between the two countries and reopening the Strait of Hormuz. In addition, Trump noted that the 60-day negotiation window for finalizing an agreement on Iran’s nuclear program is not a rigid deadline, which lifted market sentiment.

Improved risk appetite encouraged some investors to lock in profits on recent US Dollar gains. This wave of USD profit-taking emerged as a key drag on USD/JPY, offsetting some of the bullish impulse from the Fed’s stance.

Intervention Talk and BoJ Hike Bolster the Yen

Market participants remained wary of potential direct action by Japanese authorities to counter further Yen depreciation. Japan’s top foreign exchange official, Atsushi Mimura, and Finance Minister Satsuki Katayama have repeatedly cautioned that Tokyo is closely watching speculative moves and stands ready to respond to any excessive JPY weakness.

These warnings, together with the Bank of Japan’s recent historic interest rate increase to its highest level since 1995, helped limit further losses in the Japanese currency and restrained upside in USD/JPY.

Rate Differential Still Favors USD/JPY Upside

Despite the BoJ’s shift, Japan’s borrowing costs remain below those of major peers, including the United States. On Wednesday, the Federal Reserve left its benchmark overnight rate in the 3.5%-3.75% range but signaled that at least one additional hike is possible this year.

The enduringly wide yield gap between the US and Japan continues to underpin JPY-funded carry trades. This backdrop suggests that the broader bias for USD/JPY remains tilted higher, and that any near-term corrective dips are likely to attract buying interest rather than mark a sustained reversal.

JPY Performance Over the Past 30 Days

Over the last 30 days, the Japanese Yen has shown varied performance against major peers, with the JPY standing out as strongest versus the Canadian Dollar. The table below outlines the percentage changes among key currencies, where the base currency is shown on the left and the quote currency along the top.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		1.21%	0.91%	1.16%	2.66%	1.98%	1.53%	1.81%
EUR	-1.21%		-0.28%	-0.04%	1.44%	0.79%	0.30%	0.61%
GBP	-0.91%	0.28%		0.26%	1.73%	1.05%	0.60%	0.89%
JPY	-1.16%	0.04%	-0.26%		1.48%	0.74%	0.34%	0.60%
CAD	-2.66%	-1.44%	-1.73%	-1.48%		-0.64%	-1.12%	-0.82%
AUD	-1.98%	-0.79%	-1.05%	-0.74%	0.64%		-0.46%	-0.16%
NZD	-1.53%	-0.30%	-0.60%	-0.34%	1.12%	0.46%		0.28%
CHF	-1.81%	-0.61%	-0.89%	-0.60%	0.82%	0.16%	-0.28%

As noted, reading across from the Japanese Yen row to the US Dollar column shows the percentage change for JPY (base) against USD (quote) over the period.