Oil prices declined on Friday as investor hopes grew that the conflict in the Middle East may be nearing an end, fueled by prospects of further talks between the United States and Iran over the weekend and the commencement of a 10-day ceasefire between Israel and Lebanon.

Brent crude contracts dropped by $3.09, or 3.11%, to $96.30 per barrel by 09:42 GMT, while U.S. West Texas Intermediate (WTI) crude contracts fell by $4.01, or 4.23%, to $90.68 per barrel.

Giovanni Staunovo, an analyst at UBS, noted that "oil prices are reacting with extreme sensitivity to headlines of either escalation or de-escalation," following President Donald Trump’s remarks on Thursday that a deal with Iran is "very close."

At these levels, Brent contracts were heading toward a weekly gain of about 1.2%, while WTI contracts were on track for a decline of approximately 6% compared to last Friday's close.

Regarding a major sticking point in negotiations, Trump stated that Tehran offered not to possess nuclear weapons for more than 20 years, telling reporters outside the White House: "We’ll see what happens, but I think we’re very close to making a deal with Iran."

Despite prices falling below $100 per barrel, they remain elevated above the $90 mark this week, after having surged by about 50% during March.

Tamas Varga, an analyst at PVM, explained that the temporary nature of the Israel-Lebanon ceasefire, Israel's aim to significantly weaken the Iranian regime, and the low probability of an immediate reopening of the Strait of Hormuz are all factors providing price support and limiting the decline.

The Israeli military campaign in Lebanon had been a major obstacle to the peace agreement sought by the Trump administration to end the war launched by the U.S. and Israel in late February.

In this context, U.S. and Iranian negotiators have lowered their ambitions for a comprehensive agreement, shifting instead toward drafting an interim memorandum aimed at preventing a renewal of the conflict, according to two Iranian sources.

In a related development, France and Britain are set to chair a meeting of nearly 40 countries to send a message to the United States that its allies are ready to contribute to restoring energy flows through the Strait of Hormuz once conditions permit.

Ole Hansen, an analyst at Saxo Bank, said: "Once things settle down, the hard work of restarting ship movements and organizing their routes will begin. There is no doubt that a return to normal will take months, and the current supply tightness will continue to support the refined products market."

Analysts at ING estimate that approximately 13 million barrels per day of oil flows have been disrupted as a result of the closure of the Strait of Hormuz.

The U.S. dollar headed toward its second consecutive weekly decline on Friday, while both the euro and the British pound stabilized near pre-war levels. Investors continued to scale back their safe-haven positions, driven by optimism over the Israel-Lebanon ceasefire and the potential resumption of talks with Iran.

A 10-day ceasefire between Israel and Lebanon went into effect on Thursday. Meanwhile, U.S. President Donald Trump indicated that the next meeting between the United States and Iran could take place over the weekend.

At the same time, American and Iranian negotiators have lowered their ambitions for a comprehensive peace agreement, shifting instead toward an interim memorandum to prevent a renewal of the conflict, as the nuclear file remains a major obstacle.

The dollar index, which measures the American currency against a basket of six major peers, edged down by 0.02% to 98.185. It is on track for a second week of losses, having surrendered most of its war-driven gains as de-escalation optimism eroded demand for safe havens.

Michalis Rousakis, a foreign exchange strategist at Bank of America, noted that “markets are relatively calm... the focus is on the possibility of extending the ceasefire, or even reaching a permanent one... our view on the dollar for the year remains negative, but we are cautious in the near term.”

In contrast, the euro stabilized at $1.178225, heading toward its third consecutive weekly gain.

Rousakis added: “Euro-dollar has currently returned to the levels it was at before the Iran war, even though energy prices are much higher now, suggesting that markets may have jumped the gun slightly.”

He noted that Bank of America's commodities team expects energy prices to normalize over time, but this could take several months, adding that “energy prices staying at these levels is not consistent with the euro trading at $1.18.”

Meanwhile, the British pound stabilized at $1.35225, despite renewed political pressure on Prime Minister Keir Starmer and calls for his resignation from opponents following revelations that his former ambassador to the U.S. failed a security screening but still assumed the post.

Both the euro and sterling have managed to recover most of their losses stemming from the war with Iran, trading near seven-week highs.

Against the Japanese yen, the dollar stabilized at 159.225 after Bank of Japan Governor Kazuo Ueda avoided signaling an imminent interest rate hike, increasing the likelihood that rates will remain unchanged until at least June.

The risk-sensitive Australian dollar reached $0.71710, near its highest level in four years, while the New Zealand dollar declined by about 0.1% to 0.5887.

In a note issued Friday, Michael Pfister, an FX analyst at Commerzbank, stated that implied currency volatility “shows almost no signs of major uncertainty,” noting that one of the bank’s tracking indicators has returned to pre-war levels.

He added: “Even if the war ends, a new crisis is surely waiting for us. This week, the U.S. President returned to his favorite topic: the Federal Reserve. Geopolitically, Cuba appears to be his next target, alongside his frequent criticisms of NATO.”

Markets Await Central Bank Response to Inflation Risks

Investors are monitoring how policymakers will handle inflationary pressures resulting from the war, as central banks have maintained a cautious approach so far.

U.S. Treasury yields stabilized on Friday after rising in the previous session, as high oil prices continued to fuel inflationary concerns.

The two-year Treasury yield stood at 3.7732%, while the benchmark 10-year yield stabilized at 4.3054%.

Federal funds contracts show that markets expect the U.S. Federal Reserve to continue holding interest rates steady this year—a clear shift from previous expectations that indicated two rate cuts before the outbreak of the war.

For their part, G7 finance ministers and central bank governors expressed their readiness to act to limit economic and inflationary risks arising from energy price shocks and supply disruptions due to the Middle East conflict, according to French Finance Minister Roland Lescure.

Similarly, European Central Bank officials adopted a cautious tone, ruling out an interest rate hike anytime soon and emphasizing the need for more data before making any decisions.

In a related context, data showed that new U.S. jobless claims fell more than expected last week, indicating continued labor market strength. This provides the Federal Reserve with room to keep interest rates unchanged for longer while monitoring the fallout of war-driven inflation.

Gold prices declined in European markets on Friday, extending their losses for the third consecutive day and moving further away from a four-week high due to ongoing correction and profit-taking, and under pressure from the continued recovery of the U.S. dollar in the foreign exchange market.

Despite this decline, gold is on track to achieve its fourth consecutive weekly gain, as investors await further developments regarding the peace talks between the United States and Iran.

Price Overview

- Gold Prices Today: Gold metal prices fell by 0.45% to ($4,767.81), from the opening level of ($4,789.10), and recorded a high of ($4,806.46).

- Upon price settlement on Thursday, gold prices lost less than 0.1%, marking the second consecutive daily loss amid continued correction and profit-taking from a four-week high of $4,871.34 per ounce.

Weekly Trading

Throughout this week's trading, which officially concludes with today's price settlement, gold prices are up by approximately 0.75% so far, on the verge of securing a fourth consecutive weekly gain.

The U.S. dollar slid to its lowest level in six weeks earlier this week as the Israel-Lebanon truce, combined with prospects for resuming U.S.-Iranian talks, prompted investors to liquidate their long positions in the American currency.

The U.S. Dollar

The dollar index rose on Friday by 0.1%, extending its gains for the second consecutive session as it continues to recover from a six-week low, reflecting the ongoing ascent of the American currency against a basket of major and minor currencies.

In addition to dip-buying, the dollar is being buoyed by renewed demand as an alternative investment of choice, given the current uncertainty dominating the peace talks between the United States and Iran.

According to some media reports, American and Iranian negotiators have lowered their ambitions for a comprehensive peace agreement and are now seeking a temporary memorandum of understanding to prevent a return to conflict, with the nuclear file remaining a major obstacle.

U.S. President Donald Trump stated that the next round of peace talks between the United States and Iran could take place over the weekend.

Global Oil Prices

Global oil prices rose on Friday by an average of 0.75%, continuing their ascent for the second consecutive session as part of a recovery from multi-week lows, amid fears of the continued closure of the Strait of Hormuz to supertankers.

Undoubtedly, the rise in global oil prices renews fears of accelerating inflation, which may prompt global central banks to raise interest rates in the near term—a sharp shift from pre-war expectations of cutting or holding rates steady for a long period.

U.S. Interest Rates

- According to the FedWatch tool of the CME Group: the pricing of the probabilities of keeping U.S. interest rates unchanged at the April meeting is currently stable at 99%, and the pricing of the probabilities of raising interest rates by about 25 basis points is at 1%.

- In order to re-price those probabilities, investors are closely following the release of more economic data from the United States.

Gold Performance Expectations

Tim Waterer, chief market analyst at KCM Trade, said: Investors are closely monitoring any tangible progress in the U.S.-Iranian negotiations. Any progress or extension of the current fragile ceasefire could help calm oil markets and inflation fears, which could allow for a further rise in gold prices.

SPDR Fund

Gold holdings at the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, increased on Wednesday by about 1.15 metric tons, marking the third consecutive daily increase and bringing the total to 1,052.91 metric tons, which is the highest level since April 8.

The euro declined during Friday's trading against a basket of global currencies, extending its losses for the second consecutive day against the U.S. dollar and moving away from a seven-week high amid ongoing correction and profit-taking.

This decline is further supported by the continued recovery of the American currency from recent lows, as investors avoid risk due to the ambiguity surrounding peace negotiations between the United States and Iran. 

Following the current rise in global oil prices, signs of growing inflationary pressures on monetary policy makers at the European Central Bank (ECB) have increased, reviving the probability of raising European interest rates this year.

Price Overview

- Euro Exchange Rate Today: The euro fell against the dollar by approximately 0.1% to ($1.1773), from today's opening price of ($1.1782), and recorded a high of ($1.1787).

- The euro ended Thursday's trading down by 0.15% against the dollar, marking its first loss in the last nine days due to correction and profit-taking, after having earlier recorded a seven-week high of $1.1824.

Weekly Trading

Throughout this week's trading, which officially concludes with today's price settlement, the single European currency is currently up by 0.5% against the U.S. dollar, on track to achieve its third consecutive weekly gain.

The U.S. dollar slid to its lowest level in six weeks earlier this week as the Israel-Lebanon truce, combined with prospects for resuming U.S.-Iranian talks, prompted investors to liquidate their safe-haven positions.

The U.S. Dollar

The dollar index rose on Friday by 0.1%, extending its gains for the second consecutive session as it continues to recover from a six-week low, reflecting the ongoing ascent of the American currency against a basket of global currencies.

In addition to dip-buying, the dollar is being buoyed by renewed demand as an alternative investment of choice, given the current uncertainty dominating the peace talks between the United States and Iran.

According to some media reports, American and Iranian negotiators have lowered their ambitions for a comprehensive peace agreement and are now seeking a temporary memorandum of understanding to prevent a return to conflict, with the nuclear file remaining a major obstacle.

U.S. President Donald Trump stated that the next round of peace talks between the United States and Iran could take place over the weekend.

Global Oil Prices

Global oil prices rose on Friday by an average of 0.75%, continuing their ascent for the second consecutive session as part of a recovery from multi-week lows, amid fears of the continued closure of the Strait of Hormuz to supertankers.

Undoubtedly, the rise in global oil prices renews fears of accelerating inflation, which may prompt global central banks to raise interest rates in the near term—a sharp shift from pre-war expectations of cutting or holding rates steady for a long period.

European Interest Rates

- With the rebound in global oil prices, money market pricing of the probability of the European Central Bank raising European interest rates by about 25 basis points in April rose from 15% to 20%.

- In order to re-price the above probabilities, investors await the release of more economic data in the eurozone regarding levels of inflation, unemployment, and wages.

- ECB President Christine Lagarde stated that the bank is prepared to raise interest rates even if the expected rise in inflation is short-term.

- Sources told Reuters that the ECB is likely to begin discussing interest rate hikes during this month's meeting.