Currencies turned volatile on Wednesday as the safe-haven yen first jumped on news of Iranian missile strikes on bases hosting US troops in Iraq, before retreating as investors wagered it would not trigger a wider conflict in the region.
More than a dozen ballistic missiles shot through the night from Iranian territory toward the two Iraqi military bases, the US military said.
Iran's Islamic Revolutionary Guards Corps said they fired them to retaliate for last week's killing of commander Qassem Soleimani, according to a statement on state TV.
That sent the yen to a three-month high, before settling back as the absence of immediate reports of casualties steadied nerves. Twitter posts from both sides playing down the prospect of further escalation also helped calm the currency market.
US President Donald Trump tweeted that a damage assessment was "So far, so good!" and said "all is well," promising a further statement on Wednesday morning. Iranian Foreign Minister Mohammad Javad Zarif Tweeted that the attack was "proportionate" and that "we do not seek escalation or war."
The yen, regarded as a haven in times of turmoil by virtue of Japan's status as the world's biggest creditor, had leapt as much as 0.8% to 107.63 per dollar. But by midsession, it was back only a little above where it began the day.
"If the market was really worried that the end of the world was nigh, dollar/yen would have collapsed, and that's clearly not been the case," said Stuart Oakley, global head of flow FX at Nomura in Singapore.
The Swiss franc similarly gave back gains and so did gold to a lesser extent, though the precious metal still sat at an almost seven-year high, just below $1600 per ounce.
Investors focus will now be on what response, if any, the United States is planning.
"Essentially people are betting that this is not going to be our main focus three months from now," said Westpac analyst Sean Callow.
Oil prices, which initially jumped, fell back as analysts said market tension could ease as long as oil production facilities remain unaffected by attacks.
China's yuan, by afternoon, held on to most of Tuesday's steep gains at 6.9418 per dollar, after a bumpy ride.
Elsewhere, the dollar gave back a little bit of its overnight gains on other major currencies, falling about 0.1% against the Aussie, kiwi and pound.
The greenback had been buoyed overnight by a strong showing in a non-manufacturing business survey.
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