By Ankur Banerjee and Lucy Raitano

SINGAPORE/LONDON (Reuters)

The U.S. dollar firmed on Monday, with the yen at a more than six-week low as investors anticipated a response from Iran to U.S. attacks on its nuclear sites, though some analysts noted the FX reaction was relatively muted.

Iran stated that the U.S. attack on its nuclear sites expanded the range of legitimate targets for its armed forces and labeled U.S. President Donald Trump a “gambler” for joining Israel’s military campaign against the Islamic Republic.

ING FX strategist Francesco Pesole pointed out that the muted reaction in FX markets stems partly from a structural lack of appetite for long dollar positions.

> “Markets need more than what would normally be required to enter long dollar positions,” he said. “At the same time, markets are still not willing to price in a full-blown conflict in the area.”

The major moves were seen in the oil market, where crude prices hit a five-month high before trading lower on the day.

The dollar firmed 1.3% against the yen and was last at 147.7, its highest since May 15.

Bank of America strategists indicated that dollar/yen could reprice higher if oil prices remain elevated, noting Japan’s heavy reliance on oil imports from the Middle East, while the U.S. is largely energy independent.

The euro decreased by 0.5% to $1.147 but remained largely unaffected after euro area flash PMIs indicated the region’s economy flatlined for a second consecutive month in June.

Slightly improving UK flash PMIs had little effect on sterling, which last fetched $1.3389, down 0.46% against the dollar.

Meanwhile, the Australian dollar, a common risk proxy, hit a one-month low, dropping 1.1% to $0.63815, while the New Zealand dollar fell 1.3% to $0.589.

This left the dollar index, which measures the U.S. currency against six other units, 0.38% higher at 99.3.

Carol Kong, a currency strategist at Commonwealth Bank of Australia, suggested that markets are in a wait-and-see mode regarding how Iran will respond, with more concerns about the positive inflationary impact of the conflict than the negative economic repercussions.

> “The currency markets will be at the mercy of comments and actions from the Iranian, Israeli, and U.S. governments,” Kong noted. “The risks are clearly skewed to further upside in the safe-haven currencies if the parties escalate the conflict.”

Iran vowed to defend itself following the U.S. dropping 30,000-pound bunker-buster bombs onto a mountain above Iran’s Fordow nuclear site. American leaders urged Tehran to stand down, while anti-war protests emerged in U.S. cities.

In what is widely seen as Iran’s most effective threat to hurt the West, its parliament approved a move to close the Strait of Hormuz, through which nearly a quarter of global oil shipments pass.

While the dollar has resumed its role as a safe haven amid rising geopolitical risks, the relatively muted moves indicate that investors remain cautious about heavily investing in the greenback.

The U.S. currency has dropped 8.6% this year against its major rivals due to economic uncertainty arising from President Trump’s tariffs and concerns over their impact on U.S. growth.

Markets are also anticipating Federal Reserve Chair Jerome Powell’s semi-annual testimony to Congress.

Elsewhere, bitcoin rose by 1.8% after a drop of about 4% on Sunday.