Asia FX Talk Uneasy pause in US Iran war

Asia FX Talk Asia FX Talk MICHAEL WAN Senior Currency Analyst Uneasy pause in US-Iran war Global Markets Research Global Markets Division for Asia T: E: 27 July 2026

Market Highlights Markets remain on the edge around the US-Iran conflict and the path of oil prices, and in Asia what all that could also imply for currencies and whether some central banks would have to tighten policy as a result. The key development over the weekend was a pause in strikes against Iran since late Friday without any explanation or announcement after striking Iran for 13 days. Iran’s army has also signaled that it was refraining from any retaliatory attacks for the time being. All these come as Iran has also expanded its attacks through the Houthis in Yemen, targeting the Red Sea and the Bab El-Mandeb Strait, and as such potentially targeting a key alternative route for oil supplies and in particular for Saudi Arabia through the East- West pipeline. The war also saw some possible concerning signs that it has expanded MUFG Bank, Ltd. beyond the Strait of Hormuz to the Caspain Sea, with a Ukrainian attack on an Iranian A member of MUFG, a global financial group merchant vessel drawing a sharp response from Iran.

CHART 1: OIL PRICES AND IN PARTICULAR REFINED PRODUCTS HAVE RISEN POST THE ESCALATION IN THE CONFLICT BETWEEN US AND IRAN

US$/barrel Crude Oil versus Asia Refined Product Prices 240 Brent Oil - Active Contract

220 Singapore Jet Fuel 200 Singapore 95 Ron Gasoline 180 Singapore Gasoil 10 ppm Ahead Today 100 G3: US Durable Goods, 80 Germany IFO 60 Asia: Singapore industrial 40 production, China industrial 20 profits Jan-25 Feb-25 Mar-25 Apr-25 May-25 Jun-25 Jul-25 Aug-25 Sep-25 Oct-25 Nov-25 Dec-25 Jan-26 Feb-26 Mar-26 Apr-26 May-26 Jun-26 Jul-26 Aug-26

Source: Bloomberg, CEIC, MUFG GMR

While it is difficult to know for sure how things will pan out, our base case remains for de-escalation over time for several reasons and as such for oil prices

to decline from current US$100/bbl levels. First, the US military may currently lack adequate munitions to sustain an all-out war, with the New York Times reporting that Trump and his advisers have decided to hold off on plans to escalate strikes in part over concerns the war could drain already-diminished stores of Patriot anti-missile interceptors and other air defense weapons. Second, the mid-terms are also coming up and so it is not in Trump’s incentive to see oil prices sustain at current levels. Third, the Middle East and GCC countries while not homogenous, generally have an interest in seeing peace, with Oman seemingly taking a lead in negotiations over the weekend with Iran this time around. Fourth, there are also signs that China has been taking a larger role in negotiations this time over the weekend.

For Asian countries, the good news is that many have diversified their sourcing of oil since the initial Strait of Hormuz shock and as such we don’t expect the same blowout in premiums paid that we saw earlier during the year. Nonetheless, the key bottleneck continues to be in refined products and most acutely in diesel, and if the war is sustained this could add further upward pressure on inflation especially in the industrial sector and transportation.

This week will be an important one for markets, with the Fed FOMC policy meeting, the Bank of Japan, coupled with China’s Politburo meeting. While we think both the FOMC and BOJ will remain on hold, markets will look closely at the tone of the meeting and whether both signal any possibility of hikes in the next meeting in September. Meanwhile, with domestic demand remaining quite soft in China, some targeted fiscal policy easing could also be signalled post the Politburo meeting which will typically take place towards the end of July.

FOREIGN EXCHANGE Asia % Chg London close 6pm New York close 5pm Close % Chg USDJPY INDU EURJPY NKY EURUSD DAX GBPUSD UKX USDSGD STI USDTHB SET USDMYR 4.0907 0.04 OTHER INDICATORS KLCI USDIDR 17943 0.16 DXY Curncy 101.468 JCI USDPHP 61.853 0.17 PSEi USDINR GT2 Govt 4.333 SENSEX USDKRW GT10 Govt 4.678 KOSPI USDTWD 32.376 0.30 GTJPY2Y Govt 1.509 TWSE AUDUSD 0.6988 -0.19 GTJPY10Y Govt 2.797 AS USDHKD 7.8422 0.01 GTDEM10Y Govt…