The dollar index was at 98.109, near its ​lowest in over six weeks

The U.S. ​dollar lingered near six-week lows on Wednesday, surrendering nearly all the gains it ‌had made since the Middle East war erupted as hopeful signs of another round of talks between Iran and the U.S. lifted risk appetite.

Iran has effectively shut the Strait of Hormuz, a crucial waterway for a ​fifth of global oil and gas shipments, since the U.S.-Israel war with Iran began ​on February 28, a move that has sent oil prices surging and ⁠dampened investor sentiment.

U.S. attempted to impose a blockade on Iran after the collapse of weekend negotiations ​but hopes grew as the U.S. president said on Tuesday talks to end the war ​could resume in the coming days.

The euro bought $1.1793, hovering near its highest since March 2. Sterling was at $1.3574. The dollar index was at 98.109, near its ​lowest in over six weeks.

Although Iran-U.S. talks failed to produce a breakthrough – raising ​doubts over the durability of a two-week ceasefire that still has a week to run – investors are clinging ‌to ⁠hopes that diplomacy could yet deliver a resolution.

There is a growing expectation that the standoff will soon be resolved, allowing the U.S. administration to pivot towards declaring victory, before stimulating the economy ahead of the midterms, Tony Sycamore, market analyst at IG.

Brent crude futures dropped 0.28% to $94.52 a ​barrel after tumbling 4.6% ​in the previous ⁠session.

That spurred a risk-on rally across asset classes with stocks ​surging and the risk sensitive Australian dollar hitting its highest level ​since March ⁠12. The Aussie was steady at $0.7124 in early trading.

Cross-asset moves suggest investors are increasingly pricing the conflict as a temporary energy shock that could fade if diplomacy holds, OCBC strategists said in a ⁠note. The ​broader signal was decisively risk-on rather than defensive positioning.