The dollar held steady against major currencies on Friday but ended the week lower, after sources said the United States and Iran had reached a deal to extend a ceasefire and lift restrictions on navigation through the Strait of Hormuz.
The sources told Reuters that the agreement — which still awaits approval from President Donald Trump — would extend the ceasefire for 60 days and restore freedom of navigation through the strategic waterway, while negotiators address difficult issues such as Iran's nuclear programme.
The dollar had benefited from the outbreak of the war, given its status as a safe-haven currency and the limited impact on the United States from energy import price inflation. The dollar was on course to end the week down 0.3%, snapping two weeks of gains, amid signs that a ceasefire deal could be imminent.
"In the near term, the dollar is likely to weaken," said Kirstine Kundby-Nielsen, analyst at Danske Bank.
The euro steadied at $1.1643, while sterling fell 0.2% to $1.3418.
The Australian dollar held steady at $0.7160, while the New Zealand dollar rose 0.4% to $0.5963, its highest level in more than two weeks. The dollar index, which measures the US currency against a basket of peers, was pinned in a narrow range near 99, after falling 0.2% on Thursday and declining 0.3% since the start of the week.
US inflation
Inflation in the United States rose in April at its fastest pace in 3 years, driven by higher energy prices stemming from the Iran war, reinforcing economists' expectations that the Federal Reserve will keep interest rates unchanged until next year.
The yen stood at 159.30 against the dollar, remaining close to the 160 level that previously prompted Japanese authorities to intervene to support the currency.
Data released on Friday showed that annual core inflation in the Japanese capital remained below the central bank's 2% target for the fourth consecutive month in May, while factory output recovered in April.