A look at the day ahead in European and global markets from Ankur Banerjee

Markets slipped into TGIF mood as the possibility of a deal between the U.S. and Iran lifted hopes and kept oil below $100 a barrel, though with the crucial Strait of Hormuz still mostly closed the risk of a resumption in hostilities is never far off.

Investors are increasingly choosing to lean into U.S. President Donald Trump's optimism that an end to the war is in sight after he said the next round of talks could happen over the weekend.

The conflict, which erupted on February 28 with U.S.-Israeli strikes on Iran, has sparked an energy shock, forcing the International Monetary Fund to downgrade its outlook for the global economy.

The fighting has also clouded the outlook for European firms from airlines to retailers, despite hopes for robust first-quarter earnings. Higher energy prices, supply-chain disruption and slower growth are already feeding into gloomy forecasts.

Markets were rocked in March as investors scurried for the safety of the U.S. dollar but a two-week ceasefire in early April and signs of a peace deal unleashed a blistering risk-on rally.

Most major stock bourses have clawed their way back to pre-war levels, while the dollar has handed back its safe-haven gains. Sentiment got another lift after a 10-day ceasefire between Lebanon and Israel came into force on Thursday.

By Friday, however, traders were tapping the brakes ahead of yet another make-or-break weekend, with European futures pointing to a subdued open and Asian stocks lower on the day but poised for a strong weekly increase.

Over in the U.S., stocks have stormed back to record highs after the Iran war-driven selloff in March, with signs suggesting the rally has further to run.

Beyond the U.S. dollar, the war is also a fresh reminder of how commodities are reshaping geopolitics - a shift that's leaving currencies like the Norwegian krone, Canadian dollar and the Aussie and Kiwi dollars well positioned to outperform their bigger peers.

The yen, on the other hand, is back hovering close to the 160 per dollar level though the threat of intervention looks less urgent than before. Investors were pondering comments from Bank of Japan Governor Kazuo Ueda, who steered clear of signalling a rate hike was on the cards this month.

Key developments that could influence markets on Friday:

Euro zone trade balance for February.