Global equities had enjoyed a strong run this week while oil prices fell sharply on growing optimism that the 10-week conflict will soon be over.
However, the risk-on mood has been tempered by news that US forces struck Iranian military targets after an attack on three American destroyers in the strait.
“Once again, the news flow on the geopolitical front has shown that the path towards a lasting agreement is anything but linear,” said analyst Chris Weston at financial group Pepperstone.
He added that “traders have had to rethink the assumptions on the trajectory of the conflict”.
The dollar retreated against main rivals, also awaiting key US jobs data due Friday.
The British pound held up as Keir Starmer vowed to carry on as UK prime minister after his Labour party suffered big losses to the hard-right in local elections.
Critics say Starmer has swerved from one policy misstep to another, and he has been embroiled in a scandal over Peter Mandelson, who was sacked as ambassador to Washington over his links to US sex offender Jeffrey Epstein.
The prime minister has also failed to fulfil his main promise of spurring economic growth, with impatient Britons still suffering a cost-of-living crisis, including from high energy prices.
Elsewhere on Friday, the yen firmed after Japanese media reported that authorities had spent around US$64 billion since last week propping up the currency.
The market interventions reportedly began on April 30 when the yen weakened to near 160 per dollar, the lowest in almost two years.
Since then there have been several spikes in the value of the Japanese currency, sparking speculation of further moves by the government.
On the corporate front Friday, the share price of British Airways parent IAG slid 1.5% after the group flagged a surge in its jet fuel costs caused by the Middle East war, which is set to lower annual profits.
In Frankfurt, Commerzbank fell 1.2% after the German lender said it will cut up to 3,000 jobs as it battles to fend off a hostile takeover bid from Italy’s UniCredit.