The dollar weakened ahead of the closely watched US jobs report, while markets also assessed the potential impact of higher oil prices and rising geopolitical tensions on the Federal Reserve's future policy stance.

The USD index was down 0.3% in European trading as of 2:50 PM.

"While the US dollar weakened, no bearish signals were generated as spot prices failed to respond, and volatility indicators point to a broadly neutral stance," BofA strategists wrote in a note.

Tensions between the US and Iran in the Strait of Hormuz are rising; Trump says ceasefire is holding

Demand for safe-haven assets returned after US and Iranian forces exchanged fire near the Strait of Hormuz on Thursday, raising concerns about a new escalation in the region.

Iran accused the US of attacking ships entering the Strait of Hormuz and striking coastal areas near Qeshm Island, while Washington claimed it acted in self-defense after Iranian drones, missiles, and small boats attacked three US Navy destroyers transiting the strategic waterway.

Despite the flare-up in tensions, President Donald Trump said the ceasefire remains in effect and described the confrontation as limited, while Iran said the situation had returned to normal.

Markets interpreted these comments as a sign that both sides are still seeking to avoid a wider regional conflict. "As markets await signs of progress on a potential US-Iran deal and the release of nonfarm payrolls (NFP) data later today, some consolidation in Asian currencies is possible," MUFG analysts wrote in a note.

Traders are awaiting US employment data for clues from the Fed.

In Asia, the USD/JPY (Japanese yen) pair fell 0.1% on the day. The Indian rupee (USD/INR) was mostly unchanged, while the Singapore dollar (USDSGD) rose 0.1%. The AUD/USD (Australian dollar) pair rose 0.2%, and the NZD/USD pair jumped 0.3%.

In Europe, both EUR/USD and GBP/USD traded 0.4% higher.