Dollar Set for Best Month Since July 2025

The dollar index has climbed nearly 3% this month, reaching 100 and heading for its strongest performance since July 2025. The escalating Middle East conflict, now in its fifth week, has disrupted energy markets, shaken economic outlooks, and sparked a flight to the world’s primary reserve currency. With Tehran effectively blocking the Strait of Hormuz and threatening Red Sea shipping, global energy prices have surged, bolstering the dollar as the US remains the world’s top oil producer. Adding to the currency’s strength, expectations for Federal Reserve rate cuts this year have faded amid renewed inflation concerns, despite Fed Chair Jerome Powell’s reassurance that long-term US inflation expectations remain anchored. Powell acknowledged that the central bank’s current policy stance provides flexibility to assess the economic fallout from the Iran war, but traders have grown increasingly cautious.

The dollar index held above 100 on Tuesday and was on track to gain nearly 3% this month, supported by safe-haven demand as the protracted Middle East conflict pushed oil prices higher and stoked stagflation concerns. The Iran war has now entered its fifth week with no signs of easing, while Tehran has effectively closed the Strait of Hormuz and threatened Red Sea shipping. President Donald Trump warned of strikes on Iranian energy infrastructure unless Hormuz is reopened, overshadowing earlier signals of a potential deal with Iran. Meanwhile, Federal Reserve Chair Jerome Powell said long-term US inflation expectations remain in check despite heightened Middle East uncertainties and noted that the central bank’s policy stance allows officials to assess the economic impact of the Iran war. Investors now await March’s consumer confidence index and February’s JOLTS job openings data.

The US dollar index rose past 100 on Monday, its highest since May of last year as no signs of de-escalation to the war in the Middle East maintained markets' preference to holding safety through the greenback. Yemeni Houthis engaged in the conflict over the weekend to threaten exports through the Red Sea, while President Trump issued new warnings to Tehran after Iranian speakers repeatedly touted US demands as unrealistic. Crude oil and fuel prices maintained their surge from the month, supporting the outlook for a hawkish response by the Federal Reserve. The Fed was due to hold its rates unchanged next month as leading labor market indicators reflected a robust labor market, while private surveys indicated higher energy costs being faced by manufacturers. The increase in energy prices also support the dollar as a safe-haven instead of the yen and the franc due to the US being a major energy exporter, in addition to forcing importers in buying more dollars for oil and LNG.