Market sentiment remains cautious amid the escalation of the conflict between the US and Iran. At the time of publication, USD/JPY is fluctuating around 157.00.
The US Dollar Index (DXY), which tracks the dollar against a basket of six major currencies, is trading in positive territory while correcting from both its monthly and yearly highs.
Economic indicators released in the United States on Wednesday did not provide the dollar with significant support. The ADP report showed that private-sector employment increased by 63,000 in February, compared with 11,000 previously, exceeding the consensus forecast of 50,000. The ISM Services Purchasing Managers' Index (PMI) rose to 56.1 (from 53.8 in January), confirming continued expansion in the sector. The positive backdrop was reinforced by the new orders index, which increased to 58.6 from 53.1. However, the prices paid index declined to 63 from 66.6.
Nevertheless, the pair is reacting less to economic indicators than to tensions in the Middle East. Geopolitics is currently the dominant factor.
The US–Iran conflict, now in its fifth day, remains the main focus for markets outside the United States, increasing risks of global inflation driven by the oil price rally. Japan, as a major net importer of energy, faces the risk of rising import costs if oil prices continue to increase.
