FOREX: US dollar drifts higher as traders eye Iran peace deal

TOKYO - The dollar drifted higher against the yen and euro on Friday, building on the previous day's gains as doubts about an Iran peace deal buffed the U.S. currency's appeal as a haven.

The greenback also drew support from higher Treasury yields after a Financial Times report citing sources close to Federal Reserve Chair Kevin Warsh pointed to the potential for a September interest rate hike, depending on incoming data.

The monthly U.S. payrolls report USNFAR=ECI, due later on Friday, could provide more clues on the Fed's rate path.

The dollar rose slightly to 158.505 yen JPY= in the Asian morning, after gaining 0.4% on Thursday, putting it on course to rise around 0.7% this week as it recovered from a bout of joint Japan-U.S. intervention that sent the U.S. currency tumbling from near a four-decade high above 163 yen on Thursday to a 13-week low of 155.20 on Monday.

Against the euro EUR=, the greenback edged up to $1.1521 after strengthening about 0.3% in the prior session.

Tensions continued to play out in the Gulf after Reuters reported a proposed deal between Iran and Oman to help end the U.S.-Iran conflict could give Tehran control over inbound traffic through the Strait of Hormuz.

The U.S. did not immediately comment on the proposal. President Donald Trump has said that a deal to reopen the strait was imminent, but U.S. officials have repeatedly insisted that they would never agree to Iranian control of access to the world's most important trade route for energy supplies.

Brent crude LCOc1 rose a little over a dollar on Friday to trade at $83.55 per barrel, after settling up more than $3 in the previous session.

The heightening inflation risks weighed on Treasuries, sending yields higher.

"USD was supported by higher oil prices (following) news that a deal between the U.S. and Iran to reopen the strait is further away than hoped," said Kristina Clifton, an economist at Commonwealth Bank of Australia.

She and other analysts also pointed to the FT report saying Warsh was open to a September hike if inflation data is strong, although Clifton added, "We expect the Fed to wait until December before starting a modest tightening cycle."

A divided U.S. central bank left rates unchanged last month, but Warsh said he was committed to bringing inflation down.

U.S. nonfarm payrolls are forecast to have risen by 80,000 last month after an increase of 57,000 in June, according to a Reuters survey of economists. The unemployment rate USUNR=ECI is expected to hold steady at 4.2%.

Against sterling GBP=, the dollar strengthened slightly to $1.3449.

The Australian dollar AUD= weakened a touch to $0.7029 and the kiwi dollar NZD= edged down to $0.5866.

(Reporting by Kevin Buckland; Editing by Jamie Freed)