Emerging market and trade-dependent currencies also surged, while the euro only briefly held on to its gains against the buck.
The dollar was initially down heavily but later clawed back some ground, particularly against developed market peers as investors focused on how far apart China and the United States remained before calling an end to the trade conflict.
US President Donald Trump and China President Xi Jinping agreed over the weekend for a 90-day ceasefire in their trade dispute as they try to resolve their differences.
"Even though it's a 90-days truce and both US and China still need to sort out multiple issues in this period, from markets' perspective getting past the event risk with a positive outcome and de-escalation of tensions is clearly positive for risk sentiment," said Mayank Mishra, global macro strategist at Standard Chartered.
Currencies hit hard during the trade dispute recovered sharply. The Australian dollar - viewed as a barometer of Chinese growth - rocketed more than 1 percent at one point to $0.7394.
The Canadian dollar rose as much as 0.9 percent to C$1.3162 , while the Norwegian crown added 1 percent, helped by the improved market sentiment and soaring oil prices.
The euro also briefly capitalised on the dollar's weakness, adding 0.6 percent to $1.1379 before erasing most of those gains. It traded up just 0.1 percent at $1.1323 at 1150 GMT.
The dollar index, which measures the greenback against a basket of major peers, staged a fightback, trading down 0.2 percent at 97.092 after earlier falling as much as 0.6 percent.
Trade tensions have been one of the biggest drivers of dollar strength in 2018 as investors looked for safety in the world's most liquid currency.
Despite the breakthrough in the talks, however, analysts said any pressure for the dollar could be temporary.
"The most complex issues in the negotiations haven't even been brought to the surface yet," said Stephen Gallo, European Head of FX Strategy at BMO Capital Markets. "The aforementioned points should have moderating implications for the scope and duration of "risk-on" US dollar weakness."
The offshore yuan gained more than one percent to 6.8790, although analysts said that with China's economy on less steady ground than a year ago relief for the currency may be brief.
Other emerging market currencies jumped. The South African rand added as much as 2 percent, while the Mexican peso was 1.8 percent higher before erasing some gains. The Russian rouble added 0.7 percent.
Investors will also focus on US monetary policy this week. The Federal Reserve is expected to raise interest rates again later in December but recent comments from central bank officials about how many more hikes are needed in the current cycle have hurt the dollar in recent sessions.
The Japanese yen slipped 0.2 percent to 113.59.
Sterling traded lower on fresh Brexit nerves.