Dollar Heads for Weekly Loss as Markets Eye US–Iran Talks

The U.S. dollar fell on Friday, positioning itself for its sharpest weekly decline since January, as investors moved away from safe-haven assets amid growing optimism over a fragile ceasefire in the Middle East and the potential resumption of oil shipments through the Strait of Hormuz.

The shift in sentiment followed a volatile month in which the dollar had previously strengthened during the peak of the Iran conflict, when soaring oil prices and global market turbulence drove demand for traditional safe-haven currencies.

Market dynamics have reversed since a tentative ceasefire agreement earlier this week. Traders are now increasingly pricing in the possibility that diplomatic talks between the United States and Iran, expected early next week, could further ease geopolitical tensions.

The euro rose 1.8% this week to $1.173, while the British pound gained 2% to $1.347, reflecting broad-based dollar weakness. Commodity-linked currencies also advanced, with the Australian and New Zealand dollars set for gains of around 3% against the U.S. currency.

The dollar index fell 0.24% on Friday and is down 1.6% for the week, signaling a broad pullback in demand for defensive assets.

Fresh U.S. inflation data released Friday showed consumer prices rising at the fastest pace in nearly four years in March, driven in part by higher energy costs linked to the Iran conflict and lingering tariff effects. However, the reading broadly matched expectations, limiting its immediate impact on Federal Reserve policy expectations.

Analysts say currency markets are now heavily driven by shifting expectations around the outcome of U.S.–Iran negotiations. A constructive outcome could further weaken the dollar by reducing geopolitical risk premiums, while a breakdown in talks could quickly reverse recent moves.

As one strategist noted, markets “bought the dollar at the height of the conflict and are now selling it as worst-case scenarios fade.”

However, uncertainty remains elevated. Shipping data from the Strait of Hormuz shows only minimal recovery in traffic, with just a handful of vessels passing through compared to roughly 140 ships per day before the conflict, underscoring how fragile the situation remains.

The Japanese yen recovered modestly from recent lows but remained under pressure due to long-standing low interest rates and energy price sensitivity. Meanwhile, the Chinese yuan posted its strongest weekly performance in over a year, surprising analysts despite China’s status as the world’s largest oil importer.

Overall, currency markets appear to be entering a highly reactive phase, where sentiment around diplomacy in the Middle East is likely to dictate direction as much as traditional economic fundamentals.