The US Dollar Index (DXY) moved back above 100.00 on Thursday, supported by risk-off trading. It followed renewed tension around the Iran war after US President Donald Trump repeated threats of “extremely hard” attacks and urged allies to secure the Strait of Hormuz.
Iran’s President Masoud Pezeshkian issued an open letter to people in the US, questioning whether the war fits the “America First” pledge. Israel and Iran continued to exchange missiles and drones, and Tehran said US peace demands were “maximalist and irrational”.
Dollar Supported By Strong US Data
US data released on Wednesday also supported the Dollar. ADP Employment Change showed a 62K rise in jobs in March versus forecasts of 40K, while February was revised to 66K from 63K.
The ISM Manufacturing PMI rose to 52.7 in March from 52.4 in February, above the 52.5 estimate, and the highest since August 2022. Other parts of the report pointed to higher costs and weaker employment.
Attention turns to Friday’s Nonfarm Payrolls report. Forecasts point to 60K new payrolls, after a 92K fall in February.
We are seeing a familiar pattern develop in the US Dollar Index, which is now holding firm above 104.50. Looking back to this time in 2025, we recall the DXY breaking above 100 on the back of geopolitical fear and strong domestic data. Traders should be alert for a similar surge driven by today’s market conditions.
Risk Off Flows Favor The Dollar
Last year, direct threats of war with Iran drove a flight to safety into the dollar. Today, renewed instability in the Middle East, with disruptions to key shipping lanes, is creating a comparable risk-off sentiment. This backdrop again favors holding dollar-denominated assets as a safe haven.
The economic data is reinforcing this bullish dollar view, just as it did in 2025. This week’s March ADP employment report showed a stronger-than-expected gain of 190,000 jobs. Furthermore, the ISM Manufacturing PMI climbed to 51.0, signaling continued expansion in the factory sector for the third consecutive month.
This persistent economic strength, combined with a recent Core CPI reading holding firm at 3.1%, makes it unlikely the Federal Reserve will consider cutting interest rates soon. We are now watching Friday’s Nonfarm Payrolls report very closely. Another strong number could solidify the dollar’s strength for the coming weeks.
For derivative traders, this environment suggests positioning for further dollar strength. Buying call options on dollar-centric ETFs like UUP could provide upside exposure with defined risk. Selling put options on currencies like the Euro or Japanese Yen could also be a viable strategy to collect premium while betting against a dollar downturn.
