The dollar remains close to a two-month high following new tensions in the Gulf, while US employment data is upcoming.

The U.S. dollar remained close to a two-month peak on Thursday following notable gains in the previous session, fueled by rising tensions in the Middle East and predictions of sustained higher interest rates from the Federal Reserve.

The US Dollar Index showed little change in Asian trading after reaching its highest level in around two months during the night.

Israel and Lebanon ceasefire offers temporary relief

On Wednesday, Washington announced that Israel and Lebanon had reached an agreement on a ceasefire, contingent upon Hezbollah ceasing its attacks.

However, new conflicts this week, including reported Iranian missile strikes on Kuwait and Bahrain, as well as U.S. airstrikes on Iran's Qeshm Island near the Strait of Hormuz, have increased caution in the market.

The U.S. dollar received further backing from stronger-than-expected economic data released on Wednesday. Private payroll processor ADP indicated that U.S. employers added 122,000 jobs in May, suggesting ongoing strength in the labor market.

Additionally, the Institute for Supply Management’s services index rose to 54.5 in May from 53.6 in April, reflecting consistent expansion in the sector.

Investors also concentrated on the inflation aspect of the ISM report, with the prices-paid indicator reaching its highest point in nearly four years. This data heightened concerns about sustained inflation pressures, leading markets to reduce expectations for imminent easing by the Fed.

Focus is now directed toward the important U.S. nonfarm payrolls report on Friday for further insights into the Fed's policy direction.

Yen near 160/dollar, intervention risks persist

The Japanese yen's USD/JPY pair was last at 159.97 yen, close to the critical 160 yen level, prompting traders to remain vigilant for possible intervention by Tokyo authorities.

Policymakers issued new intervention warnings on Wednesday.

Bank of Japan Governor Kazuo Ueda noted that officials might need to consider raising interest rates if inflation risks outweigh risks to economic growth.

Japan's currency has faced renewed pressure due to widening yield differentials with the United States; however, expectations for further tightening of BOJ policy have helped mitigate losses.

"We believe markets will continue to test higher levels in USD/JPY, especially since June is typically a weak month for the yen," ING analysts commented in a recent report.