The US Dollar Index (DXY) ended a four-day fall and traded near 98.90 in Asian trading on Friday. Markets were waiting for the US Consumer Price Index (CPI) report later in the North American session for clues on near-term Federal Reserve policy.
The US Dollar found support from risk aversion linked to uncertainty over a US–Iran ceasefire. Israel continued strikes on Hezbollah, while Benjamin Netanyahu said Israel would soon start direct talks with Lebanon.
Dollar Supported By Geopolitical Risk
US President Donald Trump said US forces would stay deployed around Iran until full compliance with the agreement is met. JD Vance, Steve Witkoff and Jared Kushner are due to meet in Pakistan this weekend to discuss a possible long-term deal with Iran.
Esmaeil Baghaei said talks to end the conflict depend on US compliance with ceasefire commitments, including stopping hostilities in Lebanon, which Washington and Israel rejected. The Federal Reserve’s March meeting minutes showed policymakers keeping a wait-and-see stance, while noting inflation risks tied to higher oil prices are becoming more balanced.
The US Dollar is the world’s most traded currency, making up over 88% of global foreign exchange turnover, or about $6.6 trillion per day (2022). Fed policy influences the Dollar via interest rates around its 2% inflation target, and through quantitative easing or tightening.
The US Dollar Index is holding firm near 98.90 ahead of the critical US CPI data due today. We are seeing implied volatility on short-term dollar options increase, with the VIX climbing to 15.8 this week in anticipation of the release. A higher-than-expected inflation number could push the Fed to be more hawkish, sending the DXY above 99.50.
Strategies Ahead Of The CPI Release
The constant risk from the US-Iran situation provides a strong underlying bid for the dollar as a safe-haven asset. We see this reflected in energy markets, with Brent crude holding above $92 a barrel, which feeds back into inflation concerns. This situation suggests buying protective put options on currencies like the Euro or Yen could be a prudent hedge against sudden escalations over the weekend.
The Federal Reserve’s neutral stance means its next move is highly dependent on incoming data, making today’s CPI report especially significant for market direction. We recall how a similar mix of stubborn inflation and Middle East tensions in the third quarter of 2025 caused the DXY to rally over 3% in just two weeks. Therefore, straddle or strangle option strategies could be effective, as they profit from a large price move in either direction without needing to predict it correctly.
