Investor sentiment was also shaped by the latest U.S. inflation data

The U.S. dollar edged lower on Friday, as investors weighed renewed Iran-U.S. peace agreement hopes, while persistent inflation concerns complicated the outlook for central bank policy.

The US Dollar Index ticked 0.1% lower in Asian trading, stabilizing after slipping to a one-week low overnight. It was set for a 0.3% weekly decline.

U.S. President Donald Trump said on Thursday that a peace agreement with Iran could be signed as soon as this weekend, helping fuel a broad risk-on mood across markets.

However, Iranian officials indicated that no final decision had yet been reached.

Oil prices dropped to their lowest levels in around two months on hopes of a de-escalation in tensions and a reopening of energy supply routes.

Investor sentiment was also shaped by the latest U.S. inflation data. Data on Thursday showed producer prices rose more than expected in May, driven by higher energy costs linked to earlier disruptions in Middle East oil supplies.

However, underlying inflation pressures were more subdued, with core producer prices increasing less than forecast.

The figures eased some concerns about an imminent central bank rate increase and prompted markets to push expectations for any further tightening toward later in the year.

Markets are currently pricing almost a 60% chance of a rate increase by December, according to the CME FedWatch.

The central bank is expected to leave interest rates unchanged at its policy meeting next week, with markets focusing on updated economic projections and policymakers’ comments for clues on the future path of monetary policy.

Elsewhere, the yen’s USD/JPY pair edged up 0.2% to 160.25 yen, remaining above 160 yen levels that prompted intervention from Tokyo.

Markets await the Bank of Japan’s policy meeting, scheduled for June 15-16, where policymakers are expected to hike interest rates by 25 basis points to 1% – the highest in decades.