Dollar finds footing on wavering hopes for a peace deal 

By Ankur Banerjee

SINGAPORE, May 26 (Reuters) – The dollar steadied on Tuesday as investor hopes of an imminent deal to reopen the crucial Strait of Hormuz and end the Iran war were dented by fresh U.S. attacks on Iranian targets and comments that reaching an agreement may take some time.

The prospect of a peace deal has kept oil prices below $100 a barrel, eased pressure on emerging-market currencies, and boosted risk sentiment slightly this week. 

But comments from U.S. Secretary of State Marco Rubio on Tuesday that negotiating a deal with Iran could “take a few days,” a day after U.S. forces conducted what Washington called defensive strikes in southern Iran, tempered that market optimism.

The euro eased slightly to $1.163 on Tuesday after rising 0.3% on Monday. The Japanese yen fetched 158.99 per U.S. dollar. Against a basket of currencies, the dollar was at 99.031.    

“Markets are right to price some optimism because even a path toward reopening Hormuz lowers the extreme tail risk around oil, inflation and global growth,” said Charu Chanana, chief investment strategist at Saxo in Singapore.  

“I would not confuse positive negotiation noise with a durable de-escalation yet. The real test is not the headline deal, but whether tankers can move freely, insurance premiums can fall, and energy flows can normalize,” Chanana added. 

“Until then, this is likely to remain a stop-start risk-on trade.”

The Australian dollar, often viewed as a proxy for risk, was 0.23% lower at $0.7158 after rising 0.65% on Monday. 

The New Zealand dollar was at $0.5848, down 0.42% ahead of a policy decision from the country’s central bank on Wednesday, with a Reuters poll showing that 28 of 29 economists polled expect no change. [AUD/]

Treasury yields fell sharply on Tuesday as U.S. markets returned from a holiday, catching up on a drop in global bond yields on the anticipation of a peace deal. [US/]

Oil prices clawed back some of their losses at the start of trading on Tuesday on news of the U.S. strikes. Brent crude futures rose 1.5% to $97.76 per barrel after dropping 7% on Monday. [O/R]  

Analysts don’t see energy prices returning to pre-war levels anytime soon, even with a near-term resolution, as supply chains will take time to normalise and that will keep inflation and rate concerns firmly in place.

“We still expect a slow oil unwind, even if prices fall sustainably below $100 per barrel in the second half of 2026. This suggests the USD’s terms of trade support should not fade quickly,” said OCBC strategists in a note. 

“There is no strong case to be bearish USD,” they said, citing resilient U.S. growth and AI-driven inflation pressures that have nudged Federal Reserve rhetoric in a more hawkish direction.

(Reporting by Ankur Banerjee in Singapore; Editing by Shri Navaratnam and John Mair)