- Dollar steady, heading for second weekly loss
- Investors exit safe-haven positions on Middle East peace hopes
- Trump says U.S.-Iran talks could take place over the weekend
- Yen near 160/dollar as Ueda leaves markets guessing on next hike
LONDON/HONG KONG, April 17 (Reuters) - The U.S. dollar headed for a second consecutive weekly decline on Friday, while the euro and British pound steadied around pre‑war levels, as investors unwound safe-haven positions on optimism stemming from a ceasefire between Israel and Lebanon and prospects for fresh Iran talks.
A 10-day ceasefire between Lebanon and Israel went into effect on Thursday and U.S. President Donald Trump said the next meeting between the U.S. and Iran could take place over the weekend.
Meanwhile, U.S. and Iranian negotiators have scaled back ambitions for a comprehensive peace deal and are now seeking a temporary memorandum to prevent a return to conflict, with the nuclear issue remaining a core obstacle.
The dollar index , which measures the greenback's strength against six major peers, slipped 0.02% to 98.185. It was on track for a second straight week of declines, having given up most of the gains sparked by the war, as ceasefire optimism continued to reduce demand for safe-haven assets.
"Markets are relatively calm... it's the prospect of an extension of the ceasefire, or let alone a permanent ceasefire... our bias for the dollar for the year remains bearish, however in the near term, we are sceptical," said Michalis Rousakis, forex strategist at BofA.
The euro was steady at $1.178225 and on track for a third straight weekly gain.
"The euro dollar is currently at the level where it was just before the Iran war despite energy prices being a lot higher than then. This suggests that markets have slightly gone ahead of themselves," he said.
Rousakis said BofA's commodity team expected energy prices to normalise over time but that it could take several months.
"Energy prices remaining at those levels is inconsistent with the euro at 1.18," he said.
Sterling , meanwhile, was unchanged at $1.35225, even as British Prime Minister Keir Starmer faced renewed calls for his resignation from his political opponents after it was revealed his former ambassador to the United States failed security vetting but was still allowed to take up the job.
Both the euro and the pound have now largely recouped losses triggered by the Iran conflict, hovering near their highest levels in seven weeks.
Against the yen, the dollar was steady at 159.225 . Bank of Japan Governor Kazuo Ueda on Thursday steered clear of signalling a rate hike was on the cards this month, heightening the chance it will hold fire at least until June.
The risk-sensitive Australian dollar fetched $0.71710, staying near four-year highs while the kiwi traded roughly 0.1% lower at $0.5887.
In a Friday note, Commerzbank FX analyst Michael Pfister said that implied FX volatilities were showing "hardly any sign of major uncertainty" with a key one tracked by Commerzbank also back at pre-war levels.
"Even if the war were to end, surely the next crisis is waiting for us. The US president has this week once again turned his attention to his favorite topic: the Fed. Geopolitically, Cuba appears to be his next target, not to mention his regular attacks against NATO," Pfister wrote.
MARKETS WATCH CENTRAL BANK RESPONSE TO INFLATION RISKS
Investors are keen to see how policymakers will tackle war-induced inflation pressures, with central banks taking a largely cautious stance for now.
U.S. Treasury yields held steady on Friday, after rising in the previous session, as still-elevated oil prices kept inflation worries alive.
The two-year yield was last at 3.7732%, while the benchmark 10-year yield was steady at 4.3054%.
Fed funds futures show markets continue to bet that the Federal Reserve will keep rates on hold this year, sharply shifting from expectations of two rate cuts that were priced in before the war began.
Group of Seven finance ministers and central bank governors have agreed to remain ready to act to mitigate economic and inflation risks caused by the Middle East conflict's energy price and supply shocks, French Finance Minister Roland Lescure said on Thursday.
The cautious tone was echoed by European Central Bank policymakers, who played down the chance of a rate hike as soon as this month, arguing that more data will be needed and the precise timing of a move was of secondary importance.
New applications for U.S. unemployment benefits fell more than expected last week, suggesting labour market conditions remained stable. That is also seen giving the Fed room to keep interest rates unchanged for some time while policymakers monitor the inflation fallout from the war.
Reporting by Jiaxing Li in Hong Kong and Lucy Raitano in London; Editing by Kate Mayberry
Source: Reuters