FOREX-Dollar on defensive as markets hope for best on Middle East

* Dollar dipping in Asia, euro benefits from oil pullback

* Markets await more clarity on ​US-Iran talks

* Yen ⁠underpinned by risk of Japanese intervention (Updates to Asia afternoon)

SYDNEY, May 7 (Reuters) - The dollar remained on the defensive on Thursday as hopes for a de-escalation in the Iran-U.S. war supported oil-exposed currencies, while Tokyo resumed its verbal intervention in support ​of ‌the yen, keeping speculators cautious.

Iran said on Wednesday it was reviewing a U.S. peace proposal that sources indicated would formally end the war but leave unresolved key U.S. demands ⁠that Iran suspend its nuclear program and reopen the Strait of Hormuz.

Analysts were worried ⁠any agreement that did not open the vital waterway to ​shipping would likely see oil prices rise again, with Brent edging 0.8% higher in early trading.

"It remains far from clear that there is any material movement toward reopening the Strait, or if we are instead stuck in a rebranded 'ceasefire with no oil' purgatory," wrote Helima Croft, head of global commodity strategy at RBC ​Capital Markets.

"A corner ‌of the market will undoubtedly view a one-page memorandum to resume negotiations over the next thirty days as significant progress," she added. "However, an MoU is unlikely to translate into an immediate resumption of shipping traffic and major production restarts."

Hopes for de-escalation had seen oil prices slide nearly 8% overnight, easing inflationary fears and pulling down Treasury yields as markets pared back the risk of U.S. rate hikes.

Still, Brent crude futures were last at $101.89, well above the pre-war ​levels.

The pullback in oil had boosted the euro, given the continent is far more reliant on imported oil than the United States, and it was 0.1% ‌firmer at $1.1757 having touched a two-week top of $1.1797 overnight.

The dollar index slipped to as low as 97.902, not far from the two-week low it touched overnight, and well short of last week's top of 99.092.

The risk-sensitive ‌Australian dollar inched higher and last fetched $0.7242, just below the four-year high it touched on Wednesday.

Sterling was steady at $1.3594, ahead of key local elections with global investors wary that a poor showing for the ruling Labour Party could pave the way for an unwelcome leadership challenge and renew concerns about fiscal slippage.

The ​pound has gained nearly 7% since Labour won the 2024 general election, with the options market painting a fairly sanguine picture for the election.

The yen received a further lift from ‌speculation the Japanese authorities had intervened on Wednesday to buy the currency, sending the dollar as low as 155.00 at one stage, its strongest level in 10 weeks.

The dollar was last trading at 156.15 on Thursday, with dealers on guard after Japan's top currency diplomat Atsushi Mimura said the country was not restricted ⁠on intervention.

U.S. Treasury ⁠Secretary Scott Bessent will meet Japan's Prime Minister Sanae Takaichi next week. The Nikkei reported that they ‌will discuss curbing speculative yen selling, among other issues.

Sources told Reuters that authorities intervened on Thursday last week, with money market data suggesting they sold about $35 billion to support the yen. Since ​then, the market has seen three abrupt spikes ​in the yen through to Wednesday.

Analysts though don't expect the yen to remain firm for long.

"Without stronger ‌BOJ follow through via consecutive hikes to address its behind-the-curve stance, the yen is likely to remain weak in the near term," said Masahiko Loo, senior fixed income strategist at State Street Investment Management.

Repeated interventions raise the likelihood of broader policy action in the June–July window, consistent with the late 2024 playbook, Loo added. (Reporting by Wayne Cole, additional reporting by Ankur Banerjee in Singapore; Editing by Kim Coghill)