The US Dollar (USD) traded marginally higher in early European hours on Friday. The US Dollar Index (DXY, a dollar gauge versus six major currencies) edged up to about 99.25. Reports said a final US–Iran draft had been reached with Pakistan’s mediation. Terms included an immediate ceasefire on all fronts. They also included freedom of navigation in the Gulf and the Strait of Hormuz. Talks on outstanding issues were due within a week. Iranian officials cited uranium enrichment and control of the Strait as sticking points.
Traders expected the Federal Reserve (Fed, the US central bank) to hold rates steady. They also expected at least one rate rise this year. DXY held above the 20-period Exponential Moving Average (EMA, a trend-following average) at 98.79. The Relative Strength Index (RSI, a momentum indicator) struggled above 60.00. Support sat near 98.79, with risk towards 98.00 on a break lower. Upside targets included 100.00 if DXY cleared 99.52. The USD accounts for over 88% of global FX turnover. That equals about $6.6 trillion daily in 2022 data. QE (Quantitative Easing, credit expansion via asset buying) can weaken USD. QT (Quantitative Tightening, balance-sheet run-off) is usually USD-positive.
Market Shifts and Geopolitical Developments Since 2025
Looking back at the analysis from around this time in 2025, we can see the market was hopeful for a US-Iran deal that never fully materialized. The US Dollar Index (DXY) was hovering near 99.25 on expectations of easing geopolitical tension and a moderately firm Federal Reserve. Today, the situation is quite different, with the DXY trading significantly higher.
The anticipated deal with Iran stalled, and the unresolved tensions in the Strait of Hormuz have added a persistent risk premium to energy markets. We have seen continued volatility in oil prices, which have averaged over $85 per barrel for WTI crude in the first quarter of 2026, impacting global inflation forecasts. This ongoing uncertainty has maintained the dollar’s status as a primary safe-haven currency for traders.
Federal Reserve Policy and Strategic Implications for Traders
Furthermore, the Federal Reserve’s path diverged from the mild expectations of 2025. Persistent core inflation, which the latest Core PCE data shows is still running at 2.8% annually, forced the Fed to maintain its hawkish stance throughout last year. This contrasts with the market’s hope for a pivot, and has kept the Fed funds rate in a restrictive territory of 5.25-5.50%, providing strong support for the dollar.
Given this backdrop, we should consider strategies that benefit from continued dollar strength and price volatility. Buying call options on the DXY or using currency pairs like USD/JPY can provide upside exposure, as the Bank of Japan maintains a much more dovish policy. Traders should also look at options that profit from volatility, as any escalation or de-escalation in the Middle East could cause sharp, sudden market moves.
From a technical standpoint today, the DXY is trading near 104.50, well above the levels discussed last year. We are watching the 105.00 level as a key resistance point that has been tested twice in the past quarter. If the index can break and hold above this, derivative traders should be prepared for a potential move towards the 2024 highs.
