Dollar climbs to weekly high as US resumes Iran strikes

The U.S. dollar climbed to its highest level since July 2 on Monday, with the dollar index trading at 101.18 as investors sought safety amid a fresh round of U.S. military strikes on Iran and continued threats to shipping through the Strait of Hormuz.reuters+1

Geopolitical Catalyst

The greenback's advance came after the United States resumed attacks on Iranian targets, reigniting concerns over the stability of the fragile ceasefire signed on June 17. The memorandum of understanding between Washington and Tehran, which requires Iran to ensure safe passage of commercial vessels through the strait for 60 days, has been repeatedly tested since late June.csmonitor+3

U.S. Central Command conducted strikes on Iranian missile and drone storage facilities and coastal radar sites on June 26, responding to what it called "unwarranted aggression" after an Iranian drone hit a commercial vessel in the Strait of Hormuz. Iran retaliated by targeting U.S. military positions in the region, and further attacks on shipping followed in subsequent days. While both sides pulled back on June 29 and entered technical talks in Doha, the resumption of hostilities in early July revived market anxiety over energy supplies through the waterway, which carries roughly 20 percent of global oil traffic.reuters+5

Dollar's Safe-Haven Rally

The dollar index, which measures the greenback against six major currencies, rose 0.21 percent to 101.07 in Monday trading before reaching 101.18. Oil prices spiked on concerns over potential disruptions to Strait of Hormuz transit, reinforcing the dollar's appeal as a haven asset. The euro slid 0.24 percent against the dollar.commbank+1

Analysts at the American Enterprise Institute noted that the dollar's 2026 rally has been driven by a combination of safe-haven demand tied to the Iran conflict and shifting expectations toward a more hawkish Federal Reserve. The Fed held rates steady at 3.50-3.75 percent at its June meeting, with Chair Kevin Warsh's first meeting producing a hawkish dot plot that pushed markets to price in a potential rate increase later this year.aei+2

Fed Policy Anchors Broader Outlook

The Federal Reserve's June 17 statement acknowledged that "inflation remains elevated relative to the Committee's 2 percent goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy". Core CPI rose 2.9 percent year-over-year in May, while headline inflation reached 4.2 percent — the highest annual print in three years.welchforbes+1

Markets are now pricing in at least one 25-basis-point rate hike in 2026, a factor that has supported the dollar alongside geopolitical risk. The dollar index has risen roughly 5 percent since late January, reaching a 13-month high of 101.8 in late June before pulling back slightly ahead of Monday's renewed gains.morningstar+1