The US Dollar was on track for a second straight weekly drop on Friday, while the Euro and British Pound held steady near levels seen before the conflict, as investors pulled back from safe-haven assets amid optimism over a ceasefire between Israel and Lebanon and the possibility of renewed talks with Iran.
A 10-day truce between Lebanon and Israel took effect on Thursday, and US President Donald Trump indicated that the next round of US–Iran discussions could happen as soon as this weekend.
At the same time, negotiators from the US and Iran have lowered expectations for a broad peace agreement, instead working toward a temporary arrangement to avoid renewed tensions, with the nuclear issue still a major sticking point.
The Dollar index, which tracks the greenback against six major counterparts, edged down 0.02% to 98.185. It was set for a second consecutive weekly decline, having surrendered most of the gains driven by the conflict, as optimism over a ceasefire continued to dampen demand for safe-haven assets.
The Euro held firm at $1.178225 and was on course for a third consecutive weekly gain.
Whereas the British Pound remained flat at $1.35225, despite renewed pressure on Prime Minister Keir Starmer from political rivals, who called for his resignation after it emerged that a former UK ambassador to the United States had failed security checks but was still permitted to assume the role.
Both the Euro and the Pound have largely recovered the losses sparked by the Iran conflict, trading close to their highest levels in around seven weeks, Reuters reports.
Against the Yen, the Dollar was steady at 159.225. Bank of Japan Governor Kazuo Ueda avoided hinting at a rate hike this month on Thursday, increasing the likelihood that policymakers will hold off at least until June.
Meanwhile, the risk-sensitive Australian Dollar stood at $0.71710, remaining near four-year highs, while the New Zealand Dollar slipped around 0.1% to $0.5887.
Investors are closely watching how policymakers will respond to inflationary pressures driven by the conflict, with central banks for now adopting a largely cautious approach.
Furthermore, US Treasury yields were steady on Friday after climbing in the previous session, as persistently high oil prices continued to fuel concerns about inflation.
The two-year Treasury yield was last at 3.7732%, while the benchmark 10-year yield held steady at 4.3054%.
Fed funds futures indicate that markets now expect the Federal Reserve to keep interest rates unchanged this year, a sharp shift from earlier expectations of two rate cuts before the conflict began.