LONDON/SINGAPORE, May 5 (Reuters) - The U.S. dollar was broadly steady on Tuesday as markets weighed developments in the Iran war, while the yen nudged lower in somewhat muted trade after suspected intervention by Tokyo last week sparked sharp gains.
The ceasefire in the Middle East was in doubt once more after the U.S. and Iran launched new attacks as they wrestled for control of the Strait of Hormuz amid conflicting reports about ships passing through the strait in recent days.
The dollar index , which measures the U.S. currency against six units, was little changed at 98.465 after rising 0.3% on Monday. The euro last fetched $1.1692, while sterling was at $1.3543.
"The market, I think, is very, very aware that the news flow can change very quickly and this could go either way. And I think that's why the market is in this sort of holding pattern," Jane Foley, head of FX strategy at Rabobank, said.
Meanwhile, the Australian dollar steadied and last bought $0.7172, after the central bank raised interest rates, as expected, for the third straight meeting to tame inflation.
The central bank sharply raised its inflation forecasts, while downgrading the outlook for economic growth and employment due to the global energy shock.
"The RBA delivered a hawkish hike, though it still leaves in balance whether we'll see one or two more hikes by December," said Matt Simpson, a senior market analyst at StoneX.
TRADERS KEEP YEN VIGIL
The yen weakened by around 0.27% and was bought at 157.65 per U.S. dollar, but remained not far from its strongest level in two months after several bouts of sharp gains since Thursday, when sources told Reuters authorities had stepped into the currency market to arrest a steep selloff.
Data last week pointed to roughly $35 billion in spending by Tokyo to boost the yen, although analysts think it is unlikely to help the battered currency in the long term.
The yen has languished for years, weighed down by Japan's ultra-low rates and a widening gulf with higher-yielding developed markets, compounded by mounting fiscal unease. The war-driven energy shock has piled on the pressure.
Deepali Bhargava, regional head of research for Asia-Pacific at ING, said the suspected intervention has merely recalibrated the near‑term dollar-yen trading range and does little to change the underlying short‑yen, carry‑driven pressures.
A brief spike in the yen on Monday sparked speculation that Japan had once again intervened, especially after officials warned last week of such moves during the Golden Week holidays.
Charu Chanana, chief investment strategist at Saxo, said markets are keenly aware that the 160 level is politically sensitive, meaning even modest moves in thin Asian trade can trigger outsized short-covering.
"Near term, USDJPY may stay volatile in a wider 155–160 range, with authorities likely leaning against a clean break above 160 rather than engineering a durable yen reversal."
The yen's fate is also tied to oil prices and how quickly the war in the Middle East is resolved.
"A lot hinges on oil price," said Vasu Menon, managing director of investment strategy at OCBC. "If it rises or remains elevated, then the yen could come under pressure once again."
Reporting by Sophie Kiderlin in London and Ankur Banerjee in Singapore; Editing byJacqueline Wong, Emelia Sithole-Matarise and Chizu Nomiyama
