The dollar edged higher on Friday, securing its first monthly gain since October as geopolitical tensions and a more hawkish Federal Reserve stance bolstered the currency. The Dollar Index, tracking the greenback against six major currencies, rose 0.2% to 97.59, positioning it for a monthly gain of approximately 0.6%. Heightened concerns over potential U.S. military action against Iran, following stalled nuclear talks with the U.S., significantly lifted the dollar.

Analysts at ING noted that the 55% probability of a U.S. strike by March is tempering dollar depreciation despite the currency's strength. Concurrently, the Fed's January meeting saw several policymakers signal openness to rate hikes if inflation persists, reinforcing dollar demand. This confluence of factors provided the dollar with crucial support, reversing recent declines and marking a pivotal shift in currency markets.