Dollar remains stable as bond sell-off halts, Japanese yen declines despite robust GDP.

The dollar stabilized on Tuesday as a downturn in the bond market paused, while the yen weakened following data indicating that Japan's economy grew more than anticipated in the first quarter.

Overall currency markets were cautious due to declining oil prices and hopes for reduced tensions in the U.S.-Iran conflict, providing only minimal relief.

The Australian dollar experienced significant losses after comments from the Reserve Bank of Australia indicated a likely pause in rate hikes, following a total increase of 75 basis points in the last three meetings.

The euro dipped slightly against the dollar, while the pound remained unchanged ahead of important employment data.

The dollar index and futures steadied in Asian trading as investors took a step back after a lengthy sell-off in bond markets.

U.S. 10-year yields decreased by 0.5% from nearly one-year peaks overnight, while the 30-year rate dropped 0.2% from levels close to 19-year highs.

The bond sell-off subsided alongside a fall in oil prices, following U.S. President Donald Trump’s announcement of a postponed military operation against Iran and positive developments in negotiations.

Decreasing oil prices helped alleviate the global bond sell-off, yet markets maintained a level of anxiety regarding the inflationary effects of the Iran conflict, with oil prices holding most of their recent gains.

The Japanese yen’s USD/JPY pair saw a 0.1% increase but remained under pressure, nearing 160 yen.

The yen declined despite first-quarter GDP data revealing stronger-than-expected growth for Japan, driven by robust exports and improving domestic consumption.

However, analysts from Capital Economics expressed doubts about the sustainability of this growth, particularly given the disruptions in energy markets caused by the Iran situation.

Nonetheless, economic strength provides the Bank of Japan with more leeway to increase interest rates, with Tuesday’s data boosting expectations for a June hike. This notion, however, did little to support the yen, especially as Japanese government bond yields hovered near record highs.

The USD/JPY pair also came close to the 160 level, which had previously triggered substantial intervention by Tokyo earlier this month.

The Australian dollar’s AUD/USD pair dropped nearly 0.6% after the Reserve Bank of Australia’s meeting minutes revealed policymakers contemplating a potential pause in rate hikes after three consecutive increases.

The RBA indicated that it viewed monetary policy as sufficiently restrictive following the May rate hike of 25 basis points, allowing it to observe the impact of recent increases.

The RBA raised rates to 4.35% in early May, with high oil prices exacerbating existing inflation pressures in Australia. The bank consistently expressed caution regarding the Iran conflict.

In other markets, the Chinese yuan’s USD/CNY pair remained stable, while the Taiwan dollar’s USD/TWD pair rose by 0.3%.

Increasing tensions between China and Taiwan kept markets uneasy, after Taipei expressed concerns over a recent U.S.-China summit that brought up American arms sales to the island.

Taiwanese President Lai Ching-te asserted on social media that Taiwan will not be sacrificed or traded and will not relinquish its way of life under pressure.

The Indian rupee’s USD/INR pair stayed close to a record high of over 96 rupees.