Dollar gains momentum as Fed turns hawkish and Iran tensions flare

Friday 27 February 2026 - 14:20

By: Dakir Madiha

Dollar gains momentum as Fed turns hawkish and Iran tensions flare

The US dollar is set for its first monthly gain since October, supported by renewed geopolitical risks and a more assertive stance from the Federal Reserve. The dollar index rose near 97.65 late Friday, up between 0.6 and 1.4 percent against major global currencies, reflecting investors’ sharp shift toward safe-haven assets amid rising uncertainty.

The Fed’s latest meeting minutes signaled growing concern about persistent inflation, keeping the possibility of new rate hikes alive. While policymakers voted to maintain the benchmark rate between 3.50 and 3.75 percent, several members acknowledged that tighter measures may still be necessary if price pressures fail to ease. Market expectations for an early rate cut have dropped sharply, with traders now betting on possible adjustments only in the second half of the year. Officials including Boston Fed President Susan Collins and Chicago Fed’s Austan Goolsbee emphasized that inflation remains above the 2 percent target and that monetary easing is unlikely anytime soon.

Geopolitical strains have added tailwinds to the currency. Rising tensions between the United States and Iran, including reports of possible military action, have kept investors cautious. Despite continued diplomatic efforts in Geneva, the prospect of an American strike remains high, with prediction markets assigning more than a 50 percent probability to such an event before the end of March. The recent US Supreme Court decision overturning the use of emergency powers to impose tariffs also blurred trade policy prospects but reassured markets about limits to presidential authority. Analysts said the decision might help maintain longer-term dollar credibility.

Even so, analysts remain divided on the greenback’s direction for the rest of the year. ING described the current rebound as cyclical rather than structural, seeing the broader decline as temporary. Morgan Stanley expects the dollar index to fall to 94 by the second quarter before recovering to 100 by year-end, driven by slower growth followed by possible fiscal stimulus. The nomination of Kevin Warsh to replace Jerome Powell as Fed chair adds further uncertainty to future policy choices, as investors watch whether the incoming leadership will continue the current hawkish bias.