Has the dollar's war premium started to unwind?

Oil prices steadied in volatile trading on Tuesday after a sharp selloff in the previous session, as hopes for progress on reopening the Strait of Hormuz helped ease some of the market’s worst fears over energy supplies.

Brent crude recovered around 1.5% to $97.76 a barrel after sliding 7% on Monday, according to a Reuters report.

The rebound followed a turbulent session driven by US strikes on Iranian targets and fresh speculation that negotiations could restore energy flows through the key shipping route.

The dollar weakened as demand for safe-haven assets eased.

The dollar index hovered at 99.031, while the euro traded at $1.16365 and the yen slipped to 158.95 per dollar.

US markets were closed on Monday for a public holiday, limiting liquidity and adding to choppy price action.

Hormuz hopes ease the dollar bid

The Strait of Hormuz remains central to the market’s focus because of its importance to global oil shipments.

Any disruption to tanker movements through the waterway risks pushing energy prices higher, feeding inflation and weighing on global growth.

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 said the discussions were “going nicely,” while also warning that they could still fail and lead to further military action.

Those comments helped cool some of the extreme risk premium in oil and reduced demand for the dollar as a haven.

Risk-sensitive currencies in Asia-Pacific were more stable, with the Australian dollar holding near $0.71665 after touching a one-week high of $0.7195 on Monday, according to IG.

The New Zealand dollar slipped 0.25% to $0.58575 ahead of the Reserve Bank of New Zealand’s monetary policy decision on Wednesday.

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 in the Saxo Bank Investor Outlook Survey this week.

“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 high

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.