The dollar traded near a two-month high on Thursday as renewed Gulf hostilities sapped risk appetite, while traders were alert to the possibility of intervention as the Japanese yen hovered near the key 160 level.
Iranian attacks on Kuwait damaged its airport and injured dozens on Wednesday, while the U.S. military carried out strikes near the Strait of Hormuz, complicating prospects for a diplomatic end to the war.
Although Israel and Lebanon agreed to a ceasefire, a broader peace deal remained elusive, keeping oil prices elevated and supporting demand for the safe-haven dollar.
The euro rose 0.1% to $1.161 . A Reuters poll showed that the European Central Bank is set to raise its deposit rate to 2.25% on June 11 to curb inflation. The British pound also climbed 0.1% to $1.343 .
The dollar index, which measures the greenback against major peers, was little changed at 99.46, just below the two-month high of 99.56 reached in the previous session.
"It's hard to argue against dollar strength at this juncture," said Francesco Pesole, currency strategist at ING.
"Data continues to paint a picture of resilience for the U.S. economy," he added, "and fresh US-Iran military exchanges have driven a risk-off shift in global markets."
The risk-sensitive Australian dollar was steady at $0.713 after data showed Australia's balance on goods trade swung back into surplus in April.
On the data front, a survey on Wednesday showed a measure of prices paid by U.S. services businesses jumped to the highest level in nearly four years last month. This cements economists' views that the Federal Reserve would hold interest rates unchanged well into next year.
The Japanese yen fetched 159.89 per dollar, off lows on Wednesday that pushed it past the critical 160-per-dollar mark for the first time since April 30, triggering verbal warnings from authorities.
The 160 level is widely seen in markets as a line in the sand for potential official intervention.
Bank of Japan Governor Kazuo Ueda cemented a June rate hike in a narrative pivot toward inflation-fighting, as the Iran war-driven energy shock sharpens price risks and opens the door to more frequent increases in borrowing costs.
"The hawkish tone has strengthened further, including a clear expression of concern about behind-the-curve risk," wrote Naohiko Baba, head of Japan research and chief Japan economist at Barclays. "We stick to our June rate hike call."
Bitcoin hit a four-month trough of $61,344 and was last 2.6% lower at $63,305.
