The US dollar index held steady at 100.02 on Wednesday, up 0.01% after the United States launched strikes against Iran following President Trump's announcement that Tehran had shot down a US Apache helicopter in the Strait of Hormuz. The U.S. military launched strikes against Iran on Tuesday after Trump said Tehran had shot down the helicopter, throwing a wrench into prospects of peace between the two countries and further straining a fragile ceasefire. However, Trump downplayed the helicopter incident, telling The Wall Street Journal it "wasn't a big deal" and stressed that "the pilot is fine." Despite such events and the lapse in the ceasefire over the weekend, Commonwealth Bank of Australia economist Harry Ottley noted that "we continue to assess the war to be on a de-escalatory path." The dollar's stability reflects its appeal as a safe-haven asset amid ongoing geopolitical uncertainties, with the euro down 0.05% at $1.1537 and sterling losing 0.04% to $1.337.
Iran and Israel halted attacks on each other on Monday after an appeal from US President Donald Trump, but tensions ran high as Tehran threatened to resume strikes if Israel continued to hit Iran-backed Hezbollah in Lebanon. U.S. efforts to reach a lasting agreement with the Iranians to end their more than three-month-old war have made little headway, leaving oil prices elevated and underpinning safe-haven demand for the greenback. The Japanese yen weakened to as much as 160.295, continuing to hover around the 160 level widely seen as a line in the sand for potential official intervention. As per The Hindu BusinessLine, NAB's senior FX strategist Rodrigo Catril noted that "when you think about this idea of a peace deal or some sort of truce... what have we achieved in the past couple of weeks? Not a great deal." The yen's weakness reflects the broader safe-haven demand for the dollar amid ongoing geopolitical uncertainties.
Large currency speculators in the US dollar futures market have significantly increased their bullish positions, with net long positions reaching 3,758 contracts in the latest Commitment of Traders (COT) data through June 2, 2026, according to the Commodity Futures Trading Commission (CFTC). This represents a rise of 2,908 net positions compared to the previous week, marking the highest level in nearly six weeks. The surge in speculative interest comes as the dollar's strength has been driven by robust U.S. economic data and expectations for Federal Reserve policy normalization. Markets are now pricing in a more than 70% chance that the Fed will raise rates in December, up from a 45% probability a week ago, with Capital Economics now expecting the FOMC to deliver two 25-basis-point rate hikes later this year in response to the energy supply shock and re-acceleration of the U.S. labour market. As per The Hindu BusinessLine, "We've seen the dollar being stronger because of this uncertainty, but also because of strong data in the US," noted NAB's senior FX strategist.
The Japanese yen drifted 0.03% lower against the greenback to 160.38 per dollar, continuing to hover around the 160 level widely seen as a line in the sand for potential official intervention. A Bank of Japan rate hike at the June 16 policy meeting is now almost fully priced in, meaning it is unlikely on its own to trigger a significant reversal in yen weakness if delivered. Market analyst Tony Sycamore at IG noted that "It's going to take some hawkish commentary from Governor (Kazuo) Ueda that signals the BOJ could bring forward its next hike from December to September - with the possibility of a third hike before year-end." Without such hawkish commentary, the Ministry of Finance will likely need to pull out its cheque book again to defend the currency. Japan's wholesale prices surged 6.3% in the year to May, exceeding expectations and highlighting mounting price pressures from the Middle East conflict, adding to concerns about the yen's weakness.
Later in the day, the U.S. will release consumer price index data for May, seen as crucial in gauging whether the Fed may lean toward rate hikes later this year following last week's stronger-than-expected job data. Markets will be watching whether the impact of persistently high oil prices spills over into services and other sectors. As per Mitsubishi UFJ Bank senior analyst Akihiko Yokoo, "If rising inflationary pressure comes into sharper focus, the dollar is likely to attract further buying." Solid growth and persistent inflation are likely to keep expectations tilted toward further U.S. rate hikes, even as any potential U.S.-Iran deal could offer some relief. Markets will also be watching the European Central Bank's upcoming policy meeting due on Thursday, where a 25-basis-point rate hike is widely expected. The risk-sensitive Australian dollar edged 0.1% lower to $0.7021, while the kiwi lost 0.17% to $0.5812.
