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The US dollar struggled to find clear direction over the past week, caught between geopolitical tensions and domestic uncertainty that kept investors cautious. While President Donald Trump renewed warnings of potential military action against Iran—later softening his tone toward the end of the week—he stressed that all options remain open. At the same time, legal challenges surrounding the Federal Reserve and its leadership continued to weigh on sentiment, limiting the dollar’s appeal despite moments of resilience.
Geopolitics and Policy Uncertainty Cloud Dollar Outlook
Ongoing geopolitical risks added to volatility in currency markets, as traders weighed the implications of escalating rhetoric against the possibility of de-escalation. Domestically, concerns over the Federal Reserve’s independence and stability created additional headwinds for the greenback, preventing it from building sustained momentum even as risk appetite fluctuated.
Dollar Index Holds Near Monthly Highs
Despite the uncertainty, the US Dollar Index managed to close the week with modest gains, hovering near the 99.30 level after touching a monthly high. The move reflected a balance between safe-haven demand and lingering doubts about the broader policy and political backdrop.
Inflation Data Set to Drive the Week Ahead
Inflation will be the dominant theme for foreign exchange markets. The upcoming calendar features key US releases, including employment indicators such as the ADP Employment Change and Initial Jobless Claims, alongside the Personal Consumption Expenditures figures for October and November. As the Federal Reserve’s preferred inflation gauge, the PCE data will be closely watched for signals on price pressures and potential shifts in monetary policy expectations.
With inflation dynamics back in focus, the coming week is likely to bring sharper moves in major currency pairs as traders recalibrate their outlook for the dollar and global interest rates.
