The U.S. dollar edged lower on Friday as improving risk sentiment reduced demand for safe-haven assets. Investors reacted to comments from former President Donald Trump, who said he was meeting officials to decide on a potential peace framework involving Iran. The easing of geopolitical tension hopes briefly weighed on the greenback.
Despite the daily decline, the dollar remained on track for a strong monthly performance, supported by rising bond yields and growing expectations that major central banks, including the Federal Reserve, may keep interest rates elevated for longer.
By late trading, the dollar index slipped about 0.1% to 98.92. The euro gained slightly to $1.1659, while the British pound also edged higher to $1.3456.
Markets focused on U.S.–Iran developments
Traders closely watched signals around possible diplomatic progress between Washington and Tehran. Trump suggested that any agreement could involve nuclear restrictions on Iran and changes to key regional shipping routes, including the Strait of Hormuz. However, Iranian officials pushed back on the claims, saying no formal deal or negotiations of that nature had taken place.
Reports also indicated that high-level discussions ended without a final decision, keeping uncertainty in the market.
Oil and inflation in focus
Oil prices weakened as speculation around reduced geopolitical risk and potential supply normalization continued to influence markets. Analysts noted that any easing of tensions in the Middle East could benefit currencies of energy-importing economies, while supporting pressure on the U.S. dollar could depend on how oil prices and inflation trends evolve.
Dollar still supported by higher rates
Even with short-term volatility, the dollar’s broader strength in May has been driven by a global bond sell-off and expectations of prolonged high interest rates. Higher yields typically attract capital into U.S. assets, reinforcing demand for the currency.
Yen remains under pressure despite intervention
In Japan, the yen stayed near recent lows against the dollar despite large-scale intervention by authorities totaling over $70 billion last month. Inflation data from Tokyo also came in softer than expected, reinforcing expectations that the Bank of Japan will maintain a cautious stance on policy tightening.
Overall, while short-term risk sentiment has softened the dollar, strong rate expectations continue to underpin its broader upward trend for the month.