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20.02.2026 09:14 AMThe dollar is demonstrating resilience, achieving its best performance of the week due to two key factors. First, traders are adjusting their expectations for the timing and magnitude of Federal Reserve interest rate cuts. Recent economic data and the rhetoric of Fed representatives suggest that the cycle of monetary policy easing may begin later or be less aggressive than previously anticipated. This increases the dollar's appeal, as higher interest rates are maintained longer, enhancing the yield on investments in dollar-denominated assets.
Second, the escalation of geopolitical tensions over a potential military conflict between the US and Iran typically stimulates demand for the dollar as a safe-haven asset. During periods of uncertainty and increased risk, investors tend to shift their capital into more reliable and liquid assets, including the American currency. The desire to preserve capital amid potential global instability is driving investment into the dollar, putting additional pressure on other currencies and commodities.
This week, the dollar index rose by 1.0%, marking its largest increase since October of last year. Heightened concerns about inflation are overshadowing the prospects for the Fed to ease monetary policy this year, supporting the US currency.
"Markets are shifting towards a greater likelihood of US-Iran military interaction," stated RBC Capital Markets. "Rising oil prices prevent the euro and Japanese yen from being perceived as safe havens for investors, thus allowing the dollar to fill that gap."
It is worth noting that the dollar has been under pressure in recent months as other major central banks have kept interest rates unchanged or signaled increases, while expectations for further Fed cuts were heightened following President Donald Trump's nomination of Kevin Warsh as the next Fed chairman. Uncertainty regarding US trade policy also weighed on the dollar, which experienced its largest decline in eight years in 2025.
However, the minutes from the last FOMC meeting revealed that officials surprisingly took a cautious approach to rate cuts at last month's meeting, with some suggesting that the central bank might ultimately need to raise borrowing costs if inflation remains persistently high.
Later this week, a series of economic data—including a sharp decrease in initial unemployment claims—has further weakened arguments for aggressive rate cuts. Traders were pricing in rate cuts of about 58 basis points this year, compared to 63 basis points at the end of last week.
Currently, buyers need to focus on reclaiming the 1.1770 level. Only then can they aim for a test of 1.1790. From there, they can reach 1.1825, but doing so without support from major players will be quite challenging. The furthest target will be the 1.1850 high. If the trading instrument declines to around 1.1745, I expect major buyers to take serious action. If there are none, it would be wise to wait for a new low around 1.1720 or to open long positions from 1.1690.
For the pound, buyers need to reclaim the nearest resistance at 1.3460. Only then can they aim for 1.3490, above which it will be quite difficult to break through. The furthest target will be around 1.3515. If the pair falls, bears will try to take control of 1.3430. If this succeeds, a breakout from this range will deal a serious blow to the bulls' positions and could push GBP/USD down to a low of 1.3405 with a prospect of reaching 1.3380.
