The US dollar is poised to strengthen by more than 1% this week as investors watch for US Core PCE and GDP figures to assess the future direction of interest rates.
On February 20, 2026, at 9:15 AM, Reuters reported that the US dollar was likely to close the week with its strongest performance since October , boosted by better-than-expected US economic data, a more hawkish outlook from the Federal Reserve, and tensions between the US and Iran that drove investors to seek safe-haven assets.
The dollar received further support overnight after data showed that initial US jobless claims fell more than expected last week, reflecting the strength of the labor market. In early Asian trading on Friday, the dollar remained strong, pushing the pound close to a one-month low of $1.3457 and on the verge of falling nearly 1.5% this week. The euro weakened slightly by 0.02% to $1.1768 and is expected to fall around 0.8% this week amid uncertainty surrounding the term of the European Central Bank president.
Against a basket of currencies, the dollar is trading near its one-month high reached on Thursday, most recently at 97.89, and is on track to gain more than 1% this week, which would be its best weekly performance in over four months.
Joseph Capurso, a strategist at Commonwealth Bank of Australia, said he wouldn't be surprised if the dollar continues to strengthen for some time, citing the latest Fed meeting minutes which reflected that many policymakers remain open to raising interest rates if inflation remains tight.
Furthermore, concerns about the possibility of conflict between the United States and Iran have boosted the dollar's status as a safe-haven asset, following Donald Trump's warning that Iran must reach an agreement on its nuclear program or face serious consequences, setting a 10-15 day deadline and threatening retaliation from Tehran if the United States attacks military bases in the region.
Capurso warned that if the situation worsens, it could have a severe impact on the oil and financial markets and would be a crucial test of whether the dollar can maintain its status as a safe-haven asset.
Markets are watching for the release of the core personal consumption expenditure (PCE) price index and US Q4 GDP estimates today, which could determine the next direction of currency movements. Meanwhile, investors continue to expect the Fed to cut interest rates around twice this year, but the probability of a June rate cut has decreased to approximately 58% from 62% the previous week.
Chris Zaccharelli, Chief Investment Officer of Northlight Asset Management, stated that the main debate within the Fed is whether to aggressively cut interest rates to support the labor market or keep interest rates high to control inflation, and the PCE report will add weight to that debate.
In other currencies, the Australian dollar weakened 0.08% to 0.7055 USD, but is expected to fall only 0.2% this week, supported by expectations of continued tight domestic interest rates. Meanwhile, the New Zealand dollar is likely to fall around 1.2% this week after the Reserve Bank of New Zealand signaled a dovish stance, and is currently trading at 0.5967 USD.
In Japan, the yen weakened by 0.05% to 155.08 yen per dollar after data showed that Japan's annual core inflation was 2.0% in January, the lowest level in two years.
Abhijit Surya, Senior Economist for Asia Pacific at Capital Economics, believes the figures are not yet creating enough pressure for the Bank of Japan to tighten monetary policy again. However, if economic activity recovers, wages rise, and price pressures remain high, there is a high possibility that the BOJ will raise interest rates again in June.
Reference: www.reuters.com
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