LONDON - The ​U.S. dollar skimmed six-week lows on ⁠Wednesday, having surrendered almost all the gains made since the Iran war erupted, as signs of another round of talks between Washington and ‌Tehran lifted risk appetite.

Tehran 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, sending oil prices surging and igniting concerns about the hit to global growth and inflation. Washington imposed a blockade on Iranian ports after the collapse of weekend negotiations, ​but ​U.S. President Donald Trump said on Tuesday talks to end the war could resume in Pakistan in the coming days. This helped shore up investor confidence enough to cut demand for dollars as a safe haven.

The euro, which has recovered its war-driven losses, was last flat around $1.1786, ⁠near its highest since March 2. Sterling was steady at $1.356.

The dollar index, which measures the U.S. currency against six others, is back to where it was when the war broke out on February 28, having risen by as much as 3% at one point in early March.

Although talks in Islamabad last weekend 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.

The dollar emerged ⁠as the key beneficiary of ⁠safe-haven flows in March, but optimism around a ceasefire and a possible resolution has pushed it down nearly 2% this month against other major currencies.

Given the extreme uncertainty of ​the situation, MUFG currency strategist Lee Hardman said it may be too soon to declare the dollar's safe-haven appeal ‌to be over.

"In the very near term, we are a bit cautious about chasing the dollar ⁠further lower, given that the market appears kind of optimistic now that the worst is behind and things might get back to normal more quickly than is likely," Hardman said.

"I still think there's a risk that the market's underestimating the energy price shock, that it's likely to hit the global economy," he said.

Investor focus is squarely on the extent of the damage to the global economy from the energy shock, not least as prices for physical crude are above $140 a barrel, even as futures are below $100 again. The International Monetary Fund cut its growth outlook due to the war-driven energy price spikes but said the world was already drifting toward a more adverse scenario with much-weaker growth.

Under the IMF's worst-case outlook, the global economy teeters on the brink of recession, with oil prices averaging $110 a barrel in 2026 and $125 in 2027.

The Japanese yen, which is still well below pre-war levels, given ‌Japan's exposure to imported energy inflation, was weaker by 0.13% at 158.95 against the dollar ⁠on the day.

The surge in oil and natural gas prices has prompted traders to price in the ​possibility of the European Central Bank and the Bank of England raising rates this year to temper inflation, while bringing even one rate cut from the Federal Reserve into doubt.

Former U.S. Treasury Secretary Janet Yellen sees one interest rate cut by the Fed as possible this year, even as the supply shocks from the war could put ​pressure on inflation.

"Short-term ‌inflation expectations are up slightly, but they're going to watch all of that very carefully, and I think they have ⁠an open mind," she told the HSBC Global Investment Summit ​in Hong Kong on Wednesday.