The dollar had risen in March the U.S. and Israeli war on Iran sent oil prices rocketing, hit ​stocks and gold and inflation worries sank bonds

The dollar on Friday was heading for its largest weekly drop since January as other currencies gained on optimism that a ceasefire in the Gulf will hold and oil shipping will resume.

Further ‌direction for markets is likely to hang on the outcome of weekend talks between the U.S. and Iran.

The dollar had risen in March the U.S. and Israeli war on Iran sent oil prices rocketing, hit ​stocks and gold and inflation worries sank bonds.

But since a shaky ceasefire was agreed on Tuesday those positions are being unwound, with the U.S. dollar index losing 1.3% so far this week.

The euro has rallied through its 200-day moving average this week to trade at $1.1690.

The risk-sensitive Australian and New Zealand dollars are looking at weekly gains of around 3% ‌on the dollar, with the Aussie trading just ⁠above 70 cents and the kiwi at $0.5847. Sterling has gained 1.8% this week and above its 200-day moving average to $1.3424.

Even the yen, under intense pressure from Japan’s low interest rates, government spending plans and ⁠the country’s dependence on imported oil, is just above recent lows at 159.2 to the dollar.

People were buying the U.S. dollar when the war was at its most intense moment and now they’re selling as the tail risk of a really bad outcome has faded quite a bit, said ​Jason ​Wong, senior strategist at BNZ in Wellington.

Even though it still looks a ​bit shaky, the ceasefire removing that tail risk is ‌important from a sentiment point of view, he said, though noting that could turn around very quickly if anticipated weekend peace talks don’t yield progress.

If there’s positive ​talks, that would be dollar negative. And if we get to Monday and ​talks went badly and there’s still a lack of ships, things ​could turn around quickly, said Wong.

South Korea’s central bank kept its policy interest rate steady on Friday, as ‌expected, leaving the won at 1,478 to the dollar, having ​recovered from beyond 1,500.

The week’s dollar ​softness has sent yuan – which has never really dropped since war began at the end of February – to its strongest levels since 2023. In offshore trade it sat at 6.83 per dollar on Friday.