Dollar Gains on Geopolitical Jitters, but Upside May Be Limited

The U.S. dollar moved higher at the start of the week as rising geopolitical tensions dampened global risk appetite. Escalating friction involving the United States, Israel, and Iran pushed investors toward safe-haven assets, boosting demand for the greenback.

The U.S. Dollar Index rose about 0.4% on Monday, hitting a two-week high as fears of a prolonged conflict with Iran weighed on markets.

Support also came after comments from Donald Trump, which signaled a tougher stance on Iran’s oil sector and heightened concerns about further escalation.

However, the dollar’s gains remain limited. Lower U.S. Treasury yields have reduced its appeal, narrowing the interest rate advantage over other currencies. Markets expect only modest policy tightening in the near term, with growing bets that the Federal Reserve could cut rates later in 2026, while other major central banks may move toward rate hikes.

This policy divergence could cap further dollar strength, leaving its rally vulnerable despite ongoing geopolitical support.