US Dollar Holds Steady as Markets Assess Iran Peace Deal Prospects

The U.S. dollar traded largely unchanged on Friday as investors evaluated reports suggesting that Washington and Tehran are moving closer to extending their current ceasefire agreement.

While geopolitical tensions appeared to ease, traders remained cautious as uncertainty continues surrounding the final approval of any long-term agreement between the two countries.

Dollar Index Heads for Weekly Loss

The U.S. Dollar Index remained near the 99 level during Asian trading hours after declining 0.2% in the previous session.

Despite the stable performance on Friday, the index was still on track to post a weekly loss as improving risk sentiment reduced demand for traditional safe-haven assets.

U.S. Dollar Index futures also showed little movement, reflecting a wait-and-see approach among currency traders.

US and Iran Reportedly Close to Extending Ceasefire

Investor sentiment improved following reports that the United States and Iran have agreed on a preliminary framework to extend their ceasefire for an additional 60 days.

The proposed extension would allow negotiations to continue regarding Iran’s nuclear program and broader regional security issues.

However, the agreement still requires approval from U.S. President Donald Trump as well as official confirmation from Iranian authorities.

The prospect of reduced geopolitical tensions has raised hopes for smoother shipping activity through the Strait of Hormuz, helping stabilize energy markets and improve overall investor confidence.

Even so, most regional currencies remained confined to narrow trading ranges as market participants awaited further developments.

Inflation Data Keeps Federal Reserve Expectations Elevated

Currency markets also continued to react to Thursday’s U.S. inflation report, which highlighted persistent price pressures in the American economy.

The Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s preferred inflation measure, increased 3.8% year-over-year in April. The reading marked the fastest pace of inflation growth in approximately three years.

The stronger inflation data reinforced expectations that the Federal Reserve could maintain higher interest rates for longer than previously anticipated.

However, weaker U.S. economic growth figures released alongside the inflation data limited gains in Treasury yields and prevented the dollar from receiving stronger support.

Japanese Yen Remains Stable

The Japanese yen traded relatively unchanged against the U.S. dollar, with the USD/JPY pair showing little movement during Friday’s session.

Market participants also reviewed fresh inflation data from Japan’s capital city, which pointed to moderating price pressures.

Tokyo Inflation Slows for Fourth Consecutive Month

Data released on Friday showed Tokyo’s core consumer inflation slowed to 1.3% in May compared with the same period last year.

The figure remained below the Bank of Japan’s 2% inflation target for a fourth consecutive month.

Headline inflation in Tokyo eased to 0.7%, while an inflation measure excluding both fresh food and energy remained unchanged on a monthly basis.

The softer inflation readings strengthened expectations that the Bank of Japan will proceed cautiously when considering further monetary policy normalization.

As a result, support for the yen remained limited despite stronger-than-expected Japanese factory output data released earlier in the day.