The US dollar edged lower on Friday after renewed clashes between the United States and Iran, despite US President Donald Trump confirming that the ceasefire remains in place.

The two sides have exchanged intermittent fire since the ceasefire took effect on April 7, with Iran targeting locations in Gulf countries, including the United Arab Emirates.

With oil prices rising only modestly, investors remained cautiously optimistic about the possibility of a quick resolution to the conflict, amid the largely fragile truce and reports indicating that talks between Washington and Tehran are continuing.

Analysts noted that investor positioning in currency markets has returned to historical averages and is no longer supporting the dollar as strongly as it did a few weeks ago.

Francesco Pesole, FX strategist at ING, said: The hope for traders betting on high-risk assets remains that China will pressure the United States into reaching some form of agreement in the Gulf before the expected Trump-Xi summit on May 14 and 15.

He added that the outlook for the dollar now appears clearly two-sided, with stock market reactions potentially having a greater impact on the US currency than fluctuations in oil prices.

European stocks declined, while US stock futures rose by 0.30% after the SP 500 index fell 0.38% on Thursday.

The dollar index, which measures the US currency against a basket of major currencies, declined by 0.14% to 98.195 points after earlier this week recording 97.623 points, its lowest level since February 27, one day before the outbreak of the war.

Investors had rushed toward the dollar as a safe haven while selling currencies of oil-dependent economies such as Japan and eurozone countries following the rise in oil prices after Irans effective closure of the Strait of Hormuz.

Markets are also awaiting the release of the US nonfarm payrolls report later on Friday. Pesole said it may require an exceptional number, particularly one weak enough, to generate a real move in dollar volatility.

The euro rose by 0.16% to $1.1743, heading toward ending the week with slight gains.

The yen supported by intervention risks

Traders remained focused on the Japanese yen following recent interventions and verbal warnings from Tokyo, which have limited sharp selloffs in the Japanese currency. The yen remained almost stable at 156.85 against the dollar, heading toward ending the week relatively unchanged.

Japans top currency diplomat said on Thursday that Tokyo faces no restrictions regarding the number of times it can intervene in currency markets and that it remains in daily contact with US authorities, signaling the Japanese governments determination to defend the yen.

Tony Sycamore, market analyst at IG, said: Japanese intervention, in the current environment of rising energy prices and yields, can only act as a seatbelt slowing the yens decline, but it cannot fully save it.

He added that unless economic and technical conditions change, the yen is likely to continue testing the Bank of Japans willingness to intervene.

In Britain, the pound rose against both the euro and the dollar on Friday after local election results so far confirmed expectations that the Labour Party would suffer significant losses, prompting investors to focus on the future of British Prime Minister Keir Starmer.

The British pound climbed by 0.26% to $1.3584.

The Australian dollar also rose to $0.7221, while the New Zealand dollar traded at $0.5943, with both currencies heading toward weekly gains supported by improving risk appetite over recent days.