The dollar index was up less than 0.1% on Friday at 99.35 and on track for a 1.1% weekly decline, its largest since late January

The dollar slid from multi-month highs this week as soaring energy prices upended the outlook for global interest rates.

Before the U.S.-Israeli war on Iran began at the end of February, investors expected two U.S. rate cuts this year and now they believe one is a distant prospect. Yet the outlook for other major central banks has turned even more hawkish – even faster.

The euro, yen, sterling, Swiss franc and Australian dollar headed for weekly gains against the dollar as policymakers laid the groundwork for higher interest rates in response to the war in the Middle East, which has choked oil and gas supplies.

The dollar index was up less than 0.1% on Friday at 99.35 and on track for a 1.1% weekly decline, its largest since late January. Still, many analysts think a prolonged fall is unlikely.

The euro, marginally softer at $1.1558 in the Asia morning, is up 1.2% for the week. The yen, which eased to around 158 per dollar, has added 0.9% and sterling, hovering at $1.3408, is up 1.4%.

Benchmark Brent crude futures are up nearly 50% since the U.S. and Israel attacked Iran, which has all but closed the sea lane for Middle East energy exports.

The European Central Bank kept rates on hold on Thursday but warned of inflation driven by energy prices.

Investors swept away expectations for a long hold on European rates at 2% to price in a hike by June.

The Fed is signalling a longer pause if inflation stays sticky; the ECB is opening the door to insurance hikes, said Wei Yao, global chief economist and head of Asia-Pacific research at Societe Generale, in a note to clients.

Earlier on Thursday, the Bank of Japan left the door open to a hike as soon as April, wrongfooting investors who had bet on a further slide in the yen – and helping to lift the currency.

The Australian dollar was trading just short of 71 cents on Friday for a weekly gain of 1.5%, after the Reserve Bank of Australia hiked interest rates for the second time in as many months and investors expect there is more to come.