Key Takeaways

• Dollar softens: The U.S. Dollar Index slipped 0.1% in European trading at 08:49 GMT.
• No bearish signal yet: BofA strategists note the dollar has softened but “no bearish signal has been triggered,” with positioning broadly neutral.
• Hormuz tensions return: U.S. and Iranian forces exchanged fire near the strait Thursday, reigniting safe-haven demand.
• Iran’s accusations: Tehran said the U.S. targeted vessels entering Hormuz and struck coastal areas near Qeshm Island.
• U.S. self-defense claim: Washington said it acted defensively after Iranian drones, missiles, and small boats targeted three U.S. Navy destroyers.
• Trump’s “limited” framing: The president said the ceasefire remains in effect and characterized the confrontation as limited.
• Markets read between the lines: Investors interpreted both sides’ comments as signs of continued willingness to avoid a broader regional conflict.
• Fed implications: Higher oil prices and geopolitical tensions are complicating the Federal Reserve’s policy path.
• Asian FX mixed: USD/JPY fell 0.1%, AUD/USD rose 0.2%, and NZD/USD jumped 0.3%, while USD/INR was largely unchanged.
• Euro and pound advance: Both EUR/USD and GBP/USD traded 0.3% higher.
• Jobs data is the wild card: All eyes are on the U.S. employment report for clues on the Fed’s next move.

The U.S. dollar traded modestly lower during the European session on Friday as investors weighed renewed hostilities between Washington and Tehran against lingering hopes for a broader Middle East peace agreement.

The greenback weakened ahead of the closely watched U.S. jobs report, while markets also assessed the potential impact of higher oil prices and rising geopolitical tensions on the Federal Reserve’s policy path.

The U.S. Dollar Index fell 0.1% in European trade, as of 08:49 GMT.

“While the USD has softened, no bearish signal has been triggered, as skew has failed to follow spot and up/down volatility measures point to broadly neutral positioning,” BofA strategists wrote in a research note.

U.S.-Iran Hormuz Tensions Escalate; Trump Says Ceasefire Intact

Safe-haven demand returned after U.S. and Iranian forces exchanged fire near the Strait of Hormuz on Thursday, fueling fresh concerns over a renewed escalation in the region.

Iran accused the United States of targeting vessels entering the Strait of Hormuz and striking coastal areas near Qeshm Island, while Washington said it had acted in self-defense after Iranian drones, missiles, and small boats targeted three U.S. Navy destroyers transiting the strategic waterway.

Despite the flare-up, President Donald Trump said the ceasefire remained in effect and described the confrontation as limited, while Iran said conditions had returned to normal in the affected areas.

Markets interpreted the comments as a sign that both sides were still seeking to avoid a broader regional conflict.

Traders Await U.S. Jobs Data for Fed Clues

In Asia, the Japanese yen’s USD/JPY pair was down 0.1% on the day. The Indian rupee’s USD/INR was largely unchanged, while the Singapore dollar’s USD/SGD ticked up 0.1%. The Australian dollar’s AUD/USD pair rose 0.2%, while NZD/USD jumped 0.3%.

In Europe, both EUR/USD and GBP/USD traded 0.3% higher.