Investing.com - The US dollar rose slightly on Friday, on track to record its strongest weekly performance since October, supported by more hawkish expectations from the Federal Reserve and rising tensions between the United States and Iran.

At exactly 12:00 PM (Saudi time), the dollar index, which tracks the performance of the US currency against a basket of six other currencies, rose by 0.1% to 97.920, near the one-month peak seen on Thursday.

It was on track for weekly gains of over 1%, marking its strongest performance in more than four months.

The dollar rose slightly ahead of key data.

The dollar saw demand this week, supported by strong U.S. data and a hawkish tone in the minutes of the Federal Reserve's recent monetary policy meeting, along with concerns about the potential for military conflict in the Middle East.

Overnight, the dollar received an additional boost after data showed that the number of Americans filing new unemployment claims fell more than expected last week, reinforcing the stability of the labor market.

This came following the latest minutes from the Federal Reserve meeting, released on Wednesday, which showed a split among officials regarding monetary policy expectations, reinforcing the view that U.S. monetary policy will remain relatively tight.

The core personal consumption expenditures index, a measure of inflation closely monitored by the Federal Reserve, is due to be released later in the session.

Concerns about U.S.-Iran conflict have also supported the dollar as a safe haven this week, as U.S. President Donald Trump warned Tehran this week that it must reach an agreement on its nuclear program or "very bad things will happen."

Analysts at ING stated in a note: "We doubt that markets need to see some encouraging headlines about diplomatic efforts and less hawkishness regarding the military threat to sell the dollar in this environment." "It may be too early to obtain them today, and the risks remain on the upside for the dollar today."

The euro and the pound are on track for weekly losses.

In Europe, the EUR/USD pair fell by 0.1% to 1.1761, with the single currency set to lose 0.8% for the week, affected by uncertainty regarding the term of European Central Bank President Christine Lagarde.

Additionally, German producer prices fell more than expected in January, down 3% year-on-year, instead of the anticipated decline of 2.1%. There are also Eurozone PMI numbers for investors to digest later in the session.

ING added: "The disappointing ZEW index this week may have dampened some enthusiasm for today's surveys, but the Eurozone composite PMI should remain well above 50.0 (the expansion/contraction threshold), allowing for some moderate optimism. The impact on the euro should be limited, in our view."

The GBP/USD pair fell by 0.1% to 1.3451, with the pound reaching a one-month low, heading for a weekly decline of about 1.5% and struggling to capitalize on strong retail sales growth in January.

On a monthly basis, UK retail sales rose by 1.8% last month, compared to a jump of 0.4% in December, marking a 4.5% increase year-on-year.

ING said: "We expect a rate cut at the Bank of England meeting in March, which is now priced at 20 basis points, and we still expect another move in June, which is priced at only 40%. Political risks remain another key risk for the pound."

The yen falls after inflation data.

In Asia, the USD/JPY pair rose by 0.2% to 155.36, with the Japanese yen slightly lower after data showed that Japan's consumer price index fell to its lowest level in nearly four years in January.

Core inflation fell to 1.5% - below the Bank of Japan's target for the first time in nearly four years - while a measure excluding both fresh food and fuel also slowed, even though it remained above the target, indicating that the momentum of core inflation is slowing.

The weaker inflation index has raised doubts about the timing of the next interest rate hike from the central bank.

Other data released on Friday showed that industrial activity in Japan expanded at its fastest pace in just over four years in February.

Elsewhere, the USD/CNY pair traded unchanged at 6.9087, with Chinese markets closing this week.

The AUD/USD pair fell by 0.1% to 0.7042, with the Australian dollar giving back some gains this week after earlier data showed that Australia's unemployment rate remained at 4.1% in January, suggesting a labor market that is still tight despite a slowdown in employment growth.

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