Investing.com – Most Asian currencies weakened on Friday, while the dollar and Japanese yen were supported by safe-haven demand following multiple reports that Israel had launched retaliatory strikes on Iran.
Sentiment towards regional currencies also weakened due to continued warnings from Federal Reserve officials that US interest rates will remain high for a long time. It also led to sharp weekly losses for most Asian currencies.
Dollar and yen supported by safe-haven demand on reports of Israeli strikes
The pair rose slightly in Asian deals and remained near the more than five-month high hit earlier this week.
The Japanese yen fell 0.2% but remained near the 34-year highs reached this week.
Both the yen and dollar saw some inflows as multiple media reports showed Israel carried out multiple drone strikes on Iran earlier on Friday, causing explosions in several parts of Iran, Syria and Iraq.
Although initial reports indicated attacks on Iranian nuclear sites, Iranian news agencies said no damage was caused to the sites.
However, the move marks a potential escalation in the Iran-Israeli conflict and could herald a worsening geopolitical situation in the Middle East.
This idea boosted demand for the dollar and yen and also put pressure on most risk assets.
The Australian dollar, considered a key gauge of risk appetite in Asia, weakened on Friday with the pair falling 0.3% to a five-month low.
The South Korean won rose 0.4% and the Singapore dollar rose 0.1%.
The Indian rupee remained near record highs above 83.5.
Hawkish federal policy also hurts Asian currencies
A slew of hawkish comments from Fed officials also weighed on sentiment toward Asia.
Several Fed officials warned that severe inflation would force the central bank to keep interest rates high for longer, and Atlanta Fed President Raphael Bostic warned that the central bank could even raise interest rates if inflation remains resilient.
Their warnings follow strong US economic indicators, which also give the Fed enough cushion to keep rates high for a long time.
Traders were seen this week largely discounting expectations for a June interest rate cut.