Updates prices

By Ankur Banerjee and Harry Robertson

SINGAPORE/LONDON, May 26 (Reuters) - The dollar steadied on Tuesday as investor hopes of an imminent deal to reopen the Strait of Hormuz trade route and end the Iran war were dented by fresh U.S. attacks on Iranian targets and comments suggesting a swift agreement is unlikely.

The prospect of a peace deal had pushed oil prices below $100 a barrel, eased pressure on emerging-market currencies and provided a slight boost to risk sentiment this week.

Market optimism, however, was tempered on Tuesday by comments from U.S. Secretary of State Marco Rubio, who said that negotiations on a deal with Iran could "take a few days" after U.S. forces conducted what Washington called defensive strikes in southern Iran.

The euro EUR= was little changed at $1.164 after rising 0.3% on Monday. The British pound GBP=D3 fell 0.2% to $1.348, having risen 0.6% on Monday.

Against a basket of currencies, the dollar =USD was very slightly stronger at 99.05 after falling 0.3% the previous day.

"I would not confuse positive negotiation noise with a durable de-escalation yet," said Charu Chanana, chief investment strategist at investment bank Saxo in Singapore.

"The real test is not the headline deal, but whether tankers can move freely, insurance premiums can fall and energy flows can normalise."

The shift in sentiment weighed on the Japanese yen, with the U.S. dollar up 0.15% at 159.16 yen JPY=EBS, putting the currency pair closer to the 160 level at which traders watch for potential intervention by Tokyo.

Sources have told Reuters that Tokyo intervened at the end of April to haul the yen away from the 160 per dollar mark.

The Australian dollar AUD=, often viewed as a proxy for risk, was 0.15% down at $0.716 after rising by 0.6% on Monday.

Treasury yields fell sharply on Tuesday as U.S. markets returned from a holiday, catching up on a drop in global bond yields on expectations 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 LCOc1 rose 2.6% to $98.62 a barrel after dropping 7% on Monday. O/R

Analysts do not expect energy prices to return to prewar levels any time soon, even if a peace deal arrives in the near future. Supply chains will take time to normalise and that will keep inflation and interest 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," Asian bank OCBC's strategists said in a note.

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