Dollar Remains on Strong Footing

The dollar index climbed above 100.3 on Friday, its highest level since mid-May 2025, and was on track for a second consecutive weekly gain as traders continued to favor the greenback as a safe haven amid the escalating conflict with Iran and the lack of prospects for an imminent resolution. Defense Secretary Pete Hegseth told reporters that the US would carry out its largest wave of strikes yet against Iran on Friday. Oil prices also recovered after an early decline, remaining near their highest levels since 2022. Investors see the US as better positioned than other economies due to its greater energy independence. The Federal Reserve will decide on monetary policy next week and, although no changes to the federal funds rate are expected, markets will closely watch for clues about policymakers’ outlook for the remainder of the year, particularly how inflation may evolve in light of the recent energy rally. Investors are currently pricing in only one rate cut by the Fed in 2026.

The dollar index remained above the 100 mark on Friday, its highest level since late November 2025, and was on track for a second consecutive weekly gain as traders continued to favor the greenback as a safe haven amid the escalating conflict with Iran and the lack of prospects for an imminent resolution. Investors also see the US as better positioned than other economies due to its greater energy independence. At the same time, markets assessed a fresh batch of key economic data, including the PCE report, which showed the annual PCE inflation rate slowing to 2.8%. Meanwhile, GDP growth was revised sharply lower to 0.7% in Q4, half the initial estimate of 1.4%. As a result, traders reinforced bets on one Federal Reserve rate cut this year, possibly in September. The central bank will decide on monetary policy next week and, although no changes to the federal funds rate are expected, markets will closely watch for clues about policymakers’ outlook for the remainder of the year.

The dollar index climbed toward 100 on Friday and was poised for a second consecutive weekly gain, supported by safe-haven demand as the Middle East conflict showed no signs of easing. Defiant rhetoric from leaders in Tehran and Washington signaled that the Iran war remains far from de-escalation after nearly two weeks of fighting. Oil prices also surged after Iran’s new supreme leader, Mojtaba Khamenei, pledged to keep the Strait of Hormuz effectively closed while Tehran intensified attacks on regional oil and transport facilities, stoking inflation concerns. Rising inflation risks led markets to push back expectations for the next Federal Reserve rate cut from July to September. Investors now await January’s PCE price index, the Fed’s preferred inflation gauge, for updated insights on price trends, though it will not capture the impact of the Iran war.