US Dollar Index struggles to attract buyers despite escalating Iran tensions and growing expectations of further Fed rate hikes.

• DXY bulls remain cautious, avoiding aggressive positioning as they await greater clarity on evolving geopolitical risks.
• Higher oil prices are stoking inflation concerns and reinforcing expectations of additional Federal Reserve rate hikes, providing support for the US Dollar.
• The favorable fundamental environment indicates that any near-term pullbacks are likely to attract fresh buying interest.

The US Dollar Index (DXY), which measures the Greenback against a basket of major currencies, is struggling to build on a modest uptick during Monday’s Asian session and is hovering near the 100.80–100.75 area, little changed on the day. Despite the subdued price action, the broader outlook remains supportive for the US Dollar as escalating US-Iran tensions and expectations of a more hawkish Federal Reserve continue to underpin sentiment.

The Middle East conflict intensified over the weekend after the United States carried out a ninth consecutive night of strikes against Iran, following reports of another American service member being killed in Iraq. President Donald Trump stated that the operation was conducted in response to recent US military casualties. Iran retaliated by launching ballistic missiles and attack drones at targets in Bahrain, Jordan, Kuwait, and Iraq, heightening fears of a wider regional conflict. The growing geopolitical uncertainty is encouraging investors to maintain a risk premium in markets, boosting demand for the US Dollar as a traditional safe-haven asset.

At the same time, crude oil prices have surged to their highest levels since June 12, driven by concerns over supply disruptions linked to the closure of the Strait of Hormuz and a US naval blockade of Iranian ports. The sharp rise in energy costs is reviving inflation worries and increasing expectations that major central banks, including the Fed, may need to keep monetary policy tighter for longer. Market pricing reflected in the CME FedWatch Tool continues to indicate the possibility of at least one Fed rate hike in 2026, reinforcing the constructive outlook for the Greenback and limiting downside risks for the DXY.

Looking ahead, the US economic calendar is relatively quiet on Monday, leaving the Dollar largely influenced by remarks from Federal Open Market Committee (FOMC) officials and developments in the Middle East. While geopolitical headlines are likely to remain a key source of volatility, the overall fundamental backdrop continues to favor the bulls, suggesting that any notable pullbacks in the DXY are likely to attract fresh buying interest.