Dollar eases as US-Iran deal hopes grow, yen drifts

HONG KONG - The dollar retreated against most major currencies on Wednesday after the US signalled it may be nearing a deal with Iran, while the yen continued to drift weaker toward levels that have previously drawn intervention from Tokyo.

President Donald Trump said he would briefly pause an operation to help escort ships through the Strait of Hormuz, citing progress toward a comprehensive agreement with Iran.

That came shortly after US Secretary of State Marco Rubio said on Tuesday that the United States has achieved its objectives in its military campaign against Iran, and was "not cheering for an additional situation to occur."

US oil futures fell on Wednesday morning by over USD 2 following Trump's remarks, with US West Texas Intermediate softening to near USD 100 per barrel.

"The signals sent from the United States appear to offer reassurance that it's not interested in renewing hostilities," said Kyle Rodda, senior analyst at Capital.com.

However, this isn't all good news with oil still trapped and the Strait still closed, he added. "That suggests upward pressure on oil will persist, which could cause a headache for the markets once again down the line."

The euro stood at USD 1.1714 and sterling traded at USD 1.35685, both up roughly 0.2% so far on the day.

The Australian dollar fetched USD 0.7208, up nearly 0.4% in early trade, and the New Zealand dollar was up 0.3% at USD 0.5905.

The dollar index fell 0.01% to 98.299.

The markets are now gearing up for non-farm payrolls release later this week, which will serve as a test whether the economy remains resilient enough to keep the Federal Reserve's monetary policy on hold, or whether a softening labor market could revive the case for interest rate cuts.

Against the yen, the dollar traded at 157.62 yen, down 0.17% from late US levels, still well above last week's intervention low despite easing oil prices.

The move suggests the recovery has more to do with the absence of any follow-up intervention from Japanese authorities, analysts at IG said in a note.

(Reporting by Jiaxing Li; Editing by Sam Holmes)