Ok it is working as expected now.
Just to confirm what I did, as soon as I post this, I doubted I might have done something wrong, so I deleted everything and did it fresh. Upon doing that, I set a simple password and that's when I saw your reply and tried docker exec -it pihole env. But it wasn't working and then I remember seeing similar post on clearing the cache of the web browser so I gave it a try and it started working.
So I assume, your answer might be right - the special char could have been the problem! But unfortunately, I can't confirm now!