Asian Markets Retreat as US-Iran Diplomatic Strains Boost Dollar

The reversal in sentiment followed U.S. Vice President JD Vance’s decision to abandon a scheduled meeting with Iranian negotiators, a move confirmed by the Swiss Foreign Ministry. Simultaneously, Israeli military operations against Hezbollah infrastructure in southern Lebanon intensified, complicating the fragile peace environment. While oil prices initially softened, they rebounded by 0.8% to $77.23 a barrel for U.S. West Texas Intermediate, reflecting lingering skepticism over the durability of the recent maritime transit agreements.

Equities in Japan and South Korea, which had reached historic peaks earlier in the session, finished lower as traders locked in profits. Japan’s Nikkei shed 0.6%, and the Kospi dropped 1.8%. Meanwhile, the U.S. dollar index surged to 101.07, fueled by a hawkish signal from Federal Reserve Chair Kevin Warsh, who hinted at potential rate hikes to ensure price stability. This shift in monetary policy pushed the yen to 161.4 per dollar, breaching critical intervention thresholds. In the United Kingdom, political volatility mounted as Greater Manchester mayor Andy Burnham’s election victory signaled a brewing challenge to Prime Minister Keir Starmer’s leadership, contributing to a 0.3% decline in the British pound.