Dollar rises on U.S.-Iran tensions, higher rates; yen hits key intervention levels

The dollar strengthened on Wednesday, helped by an uptick in safe haven demand following fresh strikes between the U.S. and Iran and higher rates.

Meanwhile, the Japanese yen hit the key 160 level for a second straight day, sparking warnings from Japanese authorities about a possible intervention in currency markets.

At 14:58 ET (18:58 GMT), the U.S. dollar index, which tracks the greenback against a basket of six major peers, was up 0.3% to 99.52.

Uncertainty over U.S.-Iran peace talks clouded by fresh strikes

Tensions between Washington and Tehran continue to rise amid growing uncertainty over the state and extent of peace talks between the warring parties. The U.S. military on Tuesday said it had fired upon and disabled an unladen oil tanker attempting to sail toward an Iranian port.

U.S. Central Command also said it had successfully repelled multiple Iranian missiles and drones launched at Kuwait and Bahrain, and had conducted self-defense strikes on Qeshm island in response to the attacks. Meanwhile, Iranian state media said the country’s armed forces had targeted the U.S. Fifth Fleet headquarters in Bahrain and a neighboring U.S. base in retaliation for the strike on Qeshm.

The latest military action dented hopes that the U.S. and Iran may be approaching a deal to end their more than three-month old war, even as President Donald Trump stressed that talks between Washington and Tehran were ongoing. Key sticking points in the negotiations involve Iran’s nuclear ambitions and the reopening of the critical Strait of Hormuz. A flare-up in fighting between Israel and Hezbollah-backed targets in Lebanon recently has also become a new point of contention.

Media reports on Wednesday said Iran had proposed a structured four-phase roadmap aimed at reaching a peace deal with the U.S., citing Iran’s Fars News Agency.

The first phase would involve the complete cessation of military operations on all fronts, followed by the lifting of blockades, removal of oil sanctions, and a reopening of the Strait of Hormuz. The third phase would see broader negotiations on sanctions and nuclear issues, followed by the establishment of a supervisory committee to monitor the implementation of the four-phase plan.

Against this backdrop, oil prices rose on Wednesday, boosting inflationary fears. 

Private hiring rises, increasing price pressures in services sector

Turning away from the Middle East, currency market participants were also focused on Wednesday’s U.S. economic calendar.

The highlight was ADP’s monthly report on the state of the private sector. Job growth in the sector was 122k in May, the biggest increase since January 2025, with gains in eight out of 10 sub-sectors.

The data showed that the U.S. labor market continued to strengthen after a period of cooling towards the end of last year. The May nonfarm payrolls report scheduled for Friday will give another major indication on the state of job growth.

"Hiring remained resilient in May, even as AI adoption, rising energy costs, elevated interest rates and geopolitical uncertainty could have dampened the accelerating labor market," José Torres, senior economist at Interactive Brokers, said.