The US Dollar Index (DXY) rose back towards 100.00 after US President Donald Trump said the US would intensify strikes on Iran over the next two to three weeks. Oil jumped, equities fell, and attention shifted to geopolitics ahead of Friday’s US Nonfarm Payrolls report.
US Initial Jobless Claims fell to 202K from 211K, below the 212K forecast. EUR/USD eased towards 1.1540 and GBP/USD fell towards 1.3230 as the US Dollar strengthened.
Geopolitical Risk Drives Markets
A Bank of England survey said UK firms expect to raise prices by 3.7% over the next year, the largest rise in nearly two years. USD/JPY moved up towards 159.60, near the 160.00 area linked to intervention concerns, while AUD/USD edged down to about 0.6910.
WTI surged above $111.00 and briefly neared $114.00 amid fears of supply disruption and uncertainty around the Strait of Hormuz. Gold slipped towards $4,661 as a stronger US Dollar and oil-led inflation worries reduced expectations for lower rates.
Friday’s US diary includes March Average Hourly Earnings, Nonfarm Payrolls, Unemployment Rate, wider labour market data, and the S&P Global Composite PMI. WTI is a US crude benchmark, with prices influenced by supply and demand, OPEC quotas, and API and EIA inventory reports, which are within 1% of each other 75% of the time.
Looking back at this time in 2025, we saw a market jolted by geopolitical fears, which sent the US Dollar Index soaring towards 100. Today, the dollar is even stronger, hovering around 105.5, but this strength is now driven less by sudden shocks and more by stubborn US inflation and the Federal Reserve’s policy response.
How The Trend Shifted
The spike in WTI crude to over $111 a barrel last year was a clear reaction to fears of supply disruption from Iran. We have since seen prices stabilize significantly, with WTI now trading closer to $88, as the market has absorbed those risks and global supply chains have adjusted. This pattern is similar to what we saw after the 2022 energy crisis, where an initial price surge was followed by a gradual normalization over the following year.
A year ago, the strong dollar pushed EUR/USD down toward 1.1540 and GBP/USD to 1.3230. Today, the dynamic persists, with EUR/USD struggling to hold 1.07 and the pound still under pressure due to inflation that has proven stickier than the Bank of England anticipated. For traders, this means the theme of dollar dominance remains, though the reasons for it have evolved from safe-haven demand to interest rate differentials.
It is remarkable how the situation with USD/JPY mirrors the past, as we are once again watching the critical 160.00 level that prompted intervention concerns last year. The Bank of Japan has made minor policy shifts, but the wide gap between US and Japanese interest rates continues to fuel the yen’s weakness. This recurring theme suggests that options strategies betting on sharp, sudden moves remain relevant, especially if Japanese officials issue fresh warnings.
The US labor market data from last year, with jobless claims at a low 202K, pointed to a very robust economy. While the market is still healthy, we are now seeing initial claims trend slightly higher, averaging around 225K in recent weeks, with the unemployment rate ticking up to 4.1%. This softening suggests the narrative is shifting from an overheating economy to one that is slowly cooling under the weight of sustained high interest rates.
Therefore, derivative strategies should adapt from positioning for sharp, headline-driven shocks to playing more persistent, slow-moving trends. Last year’s environment rewarded quick reactions to geopolitical news, whereas the coming weeks call for focusing on inflation data and central bank commentary. Volatility may be less about unpredictable events and more about scheduled data releases like the upcoming Nonfarm Payrolls and CPI reports.
