The U.S. dollar slipped slightly lower Friday, with risk sentiment boosted by President Donald Trump delaying a decision over the U.S. joining Israel in its conflict with Iran.

At 04:15 ET (08:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, fell 0.2% to 98.265, but remained on course for a weekly gain.

Dollar retreats after Trump delays Iran decision

Israel and Iran have continued a week-long air battle Friday, which Tel Aviv has stated is needed to thwart Tehran’s nuclear ambitions. 

However, sentiment received a boost overnight as the White House said President Trump will make a decision within the next two weeks about whether to join Israel in the war.

That helped soothe nervous investors worried about an imminent U.S. attack on Iran, providing room for negotiations to continue to avoid broadening the Middle East conflict.

“The FX market has taken the somewhat lower probability of the U.S. intervening in Iran already this weekend as an opportunity to re-enter USD short positions,” said analysts at ING, in a note. 

“This confirms that a constant flow of oil-positive, risk-negative geopolitical news is needed to keep the dollar supported in an environment where markets retain a strong bias towards strategic USD shorts.”

Euro edges higher 

In Europe, EUR/USD rose 0.1% to 1.1511, with the single currency helped by a slight lessening of geopolitical tensions.

“The situation in the Middle East remains too volatile to make a strong directional call on the pair, but the overarching risk of the U.S. joining the conflict could keep it from aggressively retesting 1.160 in the next few days,” ING added.

Elsewhere, the European Central Bank will keep doing all that is necessary to complete its nearly accomplished mission on inflation, one of its top policymakers, Bundesbank President Joachim Nagel, said on Thursday.

Data this week showed eurozone inflation fell to an annual 1.9% in May from 2.2% in April, and numbers released on Friday showed German producer prices fell 1.2% on the year, suggesting underlying inflationary pressures in the eurozone’s largest economy remain weak.

GBP/USD climbed 0.1% to 1.3478, with sterling struggling to benefit from the more risk-on tone after the release of disappointing retail sales data.

British retail sales recorded their sharpest drop since December 2023 last month, falling 2.7% on the month in May, as demand fell after shoppers splurged on food, summer clothes and home improvements the month before.

Sales volumes were also 1.3% lower than a year earlier, the biggest annual drop since April 2024.

The Bank of England kept rates on hold on Thursday, but the 6-3 vote split for a cut can be interpreted marginally on the dovish side.

“We only expect two cuts this year, but markets may be tempted on the dovish side by soft U.K. data,” said ING.

PBOC keeps rates unchanged

In Asia, USD/JPY traded 0.1% lower to 145.37, with the Japanese yen buoyed by increased bets on more interest rate hikes by the BOJ. 

National core CPI surged past expectations to a near 2-½ year high in May, while underlying inflation hit an over one-year high. 

The print was followed by the minutes of the BOJ’s early-May meeting, which showed policymakers largely in support of sticking to the central bank’s rate hike path. 

USD/CNY dropped 0.1% to 7.1837, showing little reaction to the People’s Bank leaving its benchmark loan prime rate unchanged

Cited from: Investings