The US dollar softened on Tuesday as traders pared back safe-haven positions amid tentative signs of progress in reopening the Strait of Hormuz. The dollar index slipped to 99.031, while the euro traded at $1.16365 and the yen weakened to 158.95 per dollar. The move lower suggests that some of the war premium built into the greenback may be starting to unwind.
Oil rebounds on Hormuz hopes
Brent crude recovered around 1.5% to $97.76 a barrel after plunging 7% on Monday. The rebound followed a volatile session driven by US strikes on Iranian targets and fresh speculation that negotiations could restore energy flows through the key shipping route. Senior Iranian officials met Qatar’s prime minister in Doha on Monday for talks on a possible deal to reopen the strait. US President Donald Trump described the discussions as “going nicely,” while also warning that failure could lead to further military action.
The Strait of Hormuz remains central to market focus due to its critical role in global oil shipments. Any disruption to tanker movements through the waterway risks pushing energy prices higher, feeding inflation and weighing on economic growth. The talks helped cool some of the extreme risk premium in oil and reduced demand for the dollar as a haven.
Risk-sensitive currencies stabilize
Risk-sensitive currencies in Asia-Pacific were more stable. The Australian dollar held near $0.71665 after touching a one-week high of $0.7195 on Monday. The New Zealand dollar slipped 0.25% to $0.58575 ahead of the Reserve Bank of New Zealand’s monetary policy decision on Wednesday. US markets were closed on Monday for a public holiday, limiting liquidity and adding to choppy price action.
For more on dollar dynamics, see Dollar Index Slips to 99.07 as Markets Eye JOLTS Data and Friday's NFP Report.
Analysts urge caution
Charu Chanana, chief investment strategist at Saxo in Singapore, said a path towards reopening Hormuz would reduce the extreme tail risk around oil, inflation and global growth. However, she cautioned that markets should distinguish between positive negotiation signals and genuine de-escalation. “The real test is whether or not tankers can freely move through the waterway, whether or not insurance costs decline and whether or not energy flows through Hormuz normalise,” Chanana said. “Until then, the risk of further volatility remains high.”
That caution was echoed by analysts at OCBC in Singapore. They said that even if oil prices were to fall below $100 later this year, the unwind in related market positions could be slow. A resilient US economy and inflation pressures linked to AI investment could also keep the Federal Reserve hawkish, supporting the dollar.
Oil volatility remains elevated
The rebound in Brent did not erase concerns over the broader geopolitical backdrop. US airstrikes against Iranian targets in the region have kept investors wary of retaliation, particularly if Tehran moves to disrupt shipping or energy infrastructure. For now, markets are treating the talks as a reason to reduce some panic, rather than a signal that the crisis has passed. Oil remains below the psychological $100-a-barrel mark, but the speed of Monday’s decline and Tuesday’s rebound show how sensitive prices remain to headlines from the Gulf.
The dollar’s pullback also looks fragile. Without clear evidence that tankers are moving freely, insurance costs are falling and energy flows are normalising, investors are likely to stay cautious. For broader context on currency movements, see Energy Security and Geopolitics Reshape Currency Rankings, Boosting Krone and Aussie Dollar.
This article is for informational purposes only and does not constitute financial advice.
