Dollar Declines Amid Middle East Ceasefire and Inflation Negotiations

The U.S. dollar faced a second weekly decline due to a ceasefire between Israel and Lebanon and upcoming U.S.-Iran talks. Investors are unwinding safe-haven positions while central banks monitor inflation risks. The euro and sterling remain stable, with no immediate change in interest rates expected from the Federal Reserve.

The U.S. dollar ended its week on a subdued note as markets witnessed a rare ceasefire between Israel and Lebanon, alongside fresh talks between the U.S. and Iran. This development prompted investors to ease their safe-haven bets, with the dollar on course for a second consecutive weekly decline.

The 10-day ceasefire, effective since Thursday, coupled with President Trump's announcement of a potential weekend meeting with Iran, has seen a reduction in safe-haven demand. This allowed the euro to stand firm at $1.1782 and the British pound at $1.3525, both currencies approaching seven-week highs.

As central banks remain cautious about rate hikes amid ongoing inflationary pressures from the Middle East conflict, investor focus now turns to central banks' strategies. While immediate rate hikes are unlikely, future economic indicators will dictate policy decisions as the Federal Reserve holds its current stance.

(With inputs from agencies.)