Asian forex weakens, USD stabilizes, market focuses on escalating Iran situation

Investing.com - Most Asian currencies weakened on Monday, while the US dollar stabilized amid concerns over escalating US-Israel conflict with Iran, especially after President Donald Trump issued a final warning to Tehran.

Rising oil prices have sparked worries about energy-driven inflation and hawkish stance from developed central banks, keeping regional markets tense.

The US Dollar Index and Dollar Index futures steadied during Asian trading hours after declining last week.

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Indian Rupee hits record low amid oil price shock concerns

The Indian Rupee was one of the worst performers on Monday, with the USD/INR pair rising 0.3%, breaking through 94 rupees for the first time.

India is considered one of the most vulnerable countries to disruptions in oil and natural gas supplies, with rising oil prices expected to put heavy pressure on the rupee.

Local media also reported that the country is experiencing a natural gas shortage. About 80% of India’s oil and natural gas consumption depends on imports, mostly shipped from the Middle East.

However, the Reserve Bank of India has continued interventions in the foreign exchange market, preventing further deepening of the rupee’s decline.

Won falls as South Korea’s new central bank governor seen as hawkish

The USD/KRW pair rose 0.2%, but traded below the intra-day 17-year high.

The won received some support as markets bet that South Korea’s new central bank governor, Lee Ju-yeol, is hawkish, with interest rates likely to rise later this year.

Lee Ju-yeol is known for successfully predicting the 2008 financial crisis and has said he will seek a more “balanced” policy approach.

However, analysts believe Lee’s past comments lean hawkish, as he has opposed excessive lending, liquidity excess, and inflation.

ING analysts said the Bank of Korea under Lee could raise rates as early as July, especially as the Iran crisis adds more inflationary pressure.

Asian currencies weaken broadly amid escalating Iran tensions

Wider Asian currencies generally weakened, with the JPY/USD rising 0.1%, and the CNY/USD up nearly 0.4%.

The SGD/USD rose 0.1%, while the AUD/USD fell 0.6%.

Markets remain cautious about the Iran conflict escalation, especially after Trump stated Tehran has 48 hours to reopen the Strait of Hormuz or face US strikes on critical energy infrastructure.

Tehran responded by threatening to attack key energy and water infrastructure across the Middle East and to fully close the Strait of Hormuz.

Reports indicate that after entering the fourth week of conflict, there are little signs of de-escalation, with hostilities continuing in the Middle East.

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