* Prospect of Strait of Hormuz reopening perks up risk

appetite

* Safe haven dollar softens but investors on edge, await

details

* Negotiations progressing but no imminent deal expected

* Reports of fresh US attacks dampen mood

By Ankur Banerjee

SINGAPORE, May 26 (Reuters) - The dollar nursed losses

on Tuesday on rising investor optimism of a deal being struck to

reopen the crucial Strait of Hormuz and end the three-month-long

Iran war, although fresh U.S. attacks on Iranian targets weighed

on sentiment.

Despite low odds of an imminent deal, hopes of peace have

pushed oil below $100 a barrel, eased pressure on

emerging-market currencies, and boosted risk sentiment.

Iran's top negotiator and its foreign minister were in Doha

for talks with Qatar's prime minister on a potential deal. U.S.

President Donald Trump said talks with Iran were going "nicely",

but warned of fresh attacks if they failed.

The U.S. Central Command said in a statement it had carried

out fresh strikes designed "to protect our troops from threats

posed by Iranian forces."

The euro held onto its gains to trade at $1.16365 on

Tuesday, while the Japanese yen fetched 158.95 per U.S.

dollar. U.S. markets were closed on Monday for a holiday.

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 steady at $0.71665, hovering near a one-week high

after rising 0.65% on Monday.

The New Zealand dollar was at $0.58575, down 0.25%

ahead of a policy decision from the country's central bank on

Wednesday, where a Reuters poll shows 28 of 29 economists expect

no change.

"With so much of the good news around a peace deal now

likely priced into risk markets, there's certainly room for a

'buy the rumour, sell the fact' type reaction," said Tony

Sycamore, market analyst at IG.

Oil prices clawed back some of their losses at the start of

trading on Tuesday on news of the fresh U.S. strikes on Iranian

targets. Brent crude futures rose 1.5% to $97.76 per

barrel after dropping 7% on Monday.

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, keeping 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.