FOREX-Dollar drops after Strait of Hormuz declared open, set for second weekly decline

* Dollar index falls to lowest since February, euro and sterling strengthen

* Oil prices plunge over 10% as Strait of Hormuz reopens, easing supply concerns

* Fed rate cut expectations rise, Bank of England and Bank of Japan signal caution (Updates to morning New York trading)

By Chuck Mikolajczak

NEW YORK, April 17 (Reuters) - The U.S. dollar fell on Friday and was on track for a second consecutive weekly decline, extending losses after Iran said the Strait of Hormuz was open, raising hopes the Middle East conflict is nearing an end.

Iranian Foreign Minister Abbas Araqchi said in a post on X the strait was open to all commercial vessels for the remainder of a U.S.-brokered 10-day truce agreed between Israel and Lebanon involving Israel and Iran-backed Hezbollah.

Shortly after Araqchi's statement, U.S. President Donald Trump posted on Truth Social: "IRAN HAS JUST ANNOUNCED THAT THE STRAIT OF IRAN IS FULLY OPEN AND READY FOR PASSAGE".

"Nobody in their right mind, and certainly not the administration, trusts anything that Iran says, but actions do matter," said Joseph Trevisani, senior analyst at FXStreet in New York.

"This entire thing that's been going on since the war, of course, is all news-driven, that's the whole story. And what you're seeing here is a resolution or a potential resolution that the markets are going to love."

DOLLAR HITS LOWEST SINCE FEBRUARY

The dollar index, which measures the greenback against a basket of currencies, fell 0.49% to 97.73 after earlier dropping to 97.632, its lowest since February 27, before the war began. The index was down 1% on the week, set for a second straight weekly decline. Over the past two weeks, it has fallen about 2.5%, its largest two-week drop in a year.

The euro was up 0.48% at $1.1838 after touching 1.1848, its highest since February 18. The single currency was up 2.7% on the week, its biggest weekly percentage gain in a year and on course for a third consecutive weekly rise.

U.S. crude plummeted 11.53% to $83.77 a barrel, while Brent plunged to $88.80 per barrel, down 10.65% on the day.

Expectations for an interest rate cut of at least 25 basis points by the Federal Reserve at its December meeting jumped to 44.9%, according to CME's FedWatch Tool, up from 29.5% in the previous session.

Sterling strengthened 0.37% to $1.3574. Bank of England Chief Economist Huw Pill criticized his colleagues' "wait and see" messaging on holding policy steady while the Iran war plays out, saying tackling inflation should remain the main focus despite competing trade-offs.

Against the Japanese yen, the dollar weakened 0.63% to 158.18 after earlier climbing to 159.86. Bank of Japan Governor Kazuo Ueda steered clear of signaling a rate hike was on the cards this month, instead pointing to low real interest rates and robust corporate profits, reinforcing expectations the bank will hold policy steady at least until June. (Reporting by Chuck Mikolajczak. Additional reporting by Jiaxing Li in Hong Kong and Lucy Raitano in London. Editing by Andrew Heavens and Mark Potter)