The Philippine peso closed sharply higher against the US dollar on Wednesday, boosted by signs of progress in the latest round of peace talks between the United States and Iran that dampened demand for the greenback.

The currency gained 41.4 centavos to finish at P60.751 per dollar, up from its P61.165 close on Tuesday, according to data from the Bankers Association of the Philippines' website. It was the peso's strongest close in nearly seven weeks, dating back to June 18, when it ended at P60.567.

The local unit opened Wednesday's session at P60.999 and climbed to an intraday high of P60.64. Its weakest level during the session was P60.05 against the dollar. Trading volume surged, with dollars exchanged rising to $2.17 billion from $1.65 billion in the previous session.

"The peso closed lower to track the dollar correction overnight following the decline in oil prices and optimism on reopening the Strait of Hormuz," a trader said by phone.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that the latest developments in the Middle East helped ease domestic inflation concerns, supporting the currency's gains. For the Philippines, a net oil importer, lower global crude prices directly reduce the country's import bill, narrowing trade pressures that can feed through to domestic inflation and weaken the currency.

For Thursday, the trader expects the peso to trade in a range of P60.60 to P61 per dollar as markets await US nonfarm payrolls data and continue monitoring Middle East developments. Mr. Ricafort forecast a tighter range of P60.65 to P60.95.

The dollar traded around six-week lows against other major currencies on Wednesday, as optimism over a possible resolution to the war in Iran reduced safe-haven demand, Reuters reported. The dollar index, which measures the US currency against a basket of six others, was little changed at 99.85 after touching a six-week low on Monday. A broadly weaker dollar typically benefits emerging market currencies like the peso, as it encourages capital flows toward higher-yielding assets.

With oil prices back near $80 a barrel and US President Donald J. Trump stating that his administration had "very good discussions" with Iran, investors saw less reason to seek the dollar as a safe haven.

Declining oil prices also led traders to reduce the probability of a Federal Reserve interest rate hike in September, further weighing on the dollar. That probability stood at just below 60% on Wednesday, down from nearly 70% at the start of the week.

Kansas City Fed President Jeff Schmid said on Tuesday that some monetary policy tightening remained necessary to bring "too high" inflation back toward the Fed's 2% target.

Looking ahead, the US monthly employment report due Friday could help shape expectations for near-term Federal Reserve policy, which in turn influences dollar strength and capital flows affecting currencies across emerging markets including the peso. — A.M.C. Sy with Reuters