The dollar is poised for its first monthly advance since October, supported by geopolitical tensions and a hawkish stance from the Federal Reserve.

The U.S. dollar slipped on Friday but remained on course for its first monthly advance since October, supported by escalating geopolitical tensions and a more hawkish Federal Reserve stance.

As of 15:11 ET (20:11 GMT), the Dollar Index — which measures the greenback against a basket of six major currencies — was down 0.2% at 97.59, though it was still headed for a roughly 0.6% gain for the month.

Dollar supported by heightened geopolitical tensions

The dollar has drawn support from concerns that the U.S. military buildup in the Middle East could escalate into a conflict with Iran, even as both sides continue discussions over Tehran’s nuclear program.

While the United States and Iran reportedly made some progress in Thursday’s talks, mediator Oman said negotiations concluded without a breakthrough that might prevent potential U.S. military action.

U.S. President Donald Trump told reporters Friday that he was “not exactly happy” with how Iran was handling the negotiations. He added that Tehran had not shown willingness to meet key U.S. demands and reiterated his dissatisfaction with the pace of progress.

Analysts at ING noted that any further escalation in U.S.-Iran tensions currently poses the greatest upside risk for the dollar. They pointed out that prediction market Polymarket still assigns a relatively elevated 55% probability of a U.S. strike on Iran by the end of March, which they believe is limiting further dollar weakness for now.

The greenback has also benefited from a slightly more hawkish tone at the Federal Reserve, after several policymakers signaled at January’s meeting that additional rate hikes remain possible if inflation stays persistent.

Supporting that view, January’s U.S. Producer Price Index (PPI) data released Friday came in well above expectations.

“Near-term factors continue to favor further USD strength, though renewed tariff uncertainty has reinforced the dollar’s risk premium,” ING added, expecting the currency to stabilize barring any major geopolitical developments.

Euro slips in February

In Europe, EUR/USD rose 0.2% to 1.1822 on the day, but the single currency remained on track for a roughly 0.2% monthly decline, as markets expect the European Central Bank to keep interest rates unchanged in the coming months.

Data showed Germany’s unemployment total edged up by 1,000 in February to 2.977 million, reflecting the prolonged economic slowdown that has weighed on Europe’s largest economy over the past three years.

Meanwhile, French consumer prices increased 1.1% year-on-year in February, exceeding expectations and marking a pickup after inflation slowed to a more than five-year low in January.

Analysts at ING said the 1.180 level is likely to continue acting as a near-term anchor for EUR/USD, as heightened uncertainty surrounding Iran discourages strong directional bets.

Elsewhere, GBP/USD was little changed at 1.3485 but was poised to end a three-month winning streak, with sterling down about 1.5% for February.

UK Prime Minister Keir Starmer saw his Labour Party suffer a notable by-election defeat, losing one of its safest seats to the left-wing Green Party of England and Wales.

The result adds to political pressure on Starmer after weeks of turbulence and renewed calls for his resignation. ING noted that developments perceived as weakening Starmer’s position have recently weighed on the pound, as a stronger showing by the Greens may raise expectations of a more left-leaning successor should he step down prematurely.

Yen on track for monthly decline

In Asia, USD/JPY slipped 0.1% to 156.00 on the day, but the pair remained poised for a 0.8% gain in February, reflecting continued weakness in the Japanese currency. The yen has come under pressure as investors assess the fiscal implications of Prime Minister Sanae Takaichi’s stimulus and tax cut proposals.

Takaichi’s ruling coalition strengthened its position after securing a supermajority in Japan’s lower house, clearing the way for her fiscal agenda.

At the same time, uncertainty over the timing of the next rate hike from the Bank of Japan has weighed on the yen. Soft February consumer price data from Tokyo — often viewed as a leading indicator of nationwide inflation — showed core CPI slipping below the BOJ’s 2% annual target for the first time in nearly four years, potentially limiting the scope for further tightening.

Elsewhere, USD/CNY rose 0.3% to 6.8579 after the People’s Bank of China removed a key foreign exchange risk reserve requirement for certain forward contracts, effectively making it cheaper to buy dollars domestically.

The move followed a strong rally in the yuan in recent months, partly fueled by exporters selling dollars amid a robust trade surplus with the United States.

AUD/USD gained 0.2% to 0.7120, with the Australian dollar set for a more than 2% monthly advance, supported largely by a more hawkish policy outlook from the Reserve Bank of Australia.

Sources: Anuron Mitra