The US Dollar Index (DXY) traded near 100.00 in early European trading on Friday. It stayed higher amid concerns about a longer conflict in the Middle East, while markets awaited the US March jobs report.
On Thursday, US President Donald Trump said the war’s core objectives were “nearing completion” and could end in two to three weeks. He also warned of bombing Iran “back to the Stone Age” if it did not accept an unconditional surrender.
Middle East Tensions And Safe Haven Demand
Iran’s foreign minister, Abbas Araghchi, said the attack would not force Tehran to surrender. He said it showed “the defeat and moral collapse of an enemy in disarray”, and the situation supported demand for safe-haven currencies such as the US Dollar.
US tariff threats also featured, as Bloomberg reported an executive order that could impose up to 100% on certain imported medicines from firms that do not reach deals with the administration. Markets also focused on job data forecasts of 60,000 additions in March and an Unemployment Rate of 4.4%.
The US Dollar is the world’s most traded currency, accounting for over 88% of global foreign exchange turnover, or about $6.6 trillion per day, based on 2022 data. The Federal Reserve targets inflation of 2% and uses interest rates, along with tools such as quantitative easing and quantitative tightening, to influence the Dollar.
We remember this time last year, in early 2025, when the US Dollar Index was holding near the 100.00 level. The market was caught between the dollar’s safe-haven appeal due to conflict in the Middle East and concerns over new trade tariffs. The focus then was on a surprisingly weak jobs report forecast, which created significant uncertainty.
Today, the DXY is trading in a much stronger position, recently holding firm above 105.00. This strength is supported by a resilient labor market, as the latest Non-Farm Payrolls report for March 2026 showed the economy added 275,000 jobs, with the unemployment rate at 3.9%. This is a world away from the soft 60,000 jobs figure anticipated at this time last year.
Federal Reserve Policy And Trading Approaches
This persistent economic strength has forced the Federal Reserve to maintain a hawkish stance, keeping interest rates elevated to combat lingering inflation. As we know, higher interest rates tend to make the US Dollar more attractive to foreign investors, providing a strong tailwind. This contrasts with the situation in early 2025, when the path of monetary policy was far less clear.
Given this backdrop, traders should consider positioning for continued dollar strength over the next few weeks. Buying call options on the US Dollar Index provides a way to profit from further upside while limiting potential losses. This strategy would be particularly effective if upcoming inflation data comes in hotter than expected, reinforcing the Fed’s higher-for-longer narrative.
However, we must also be prepared for volatility, as geopolitical risks remain, albeit in different regions than last year. To hedge against sudden, sharp moves in either direction, purchasing options straddles on major currency pairs like the EUR/USD could be a prudent move. This allows a trader to profit from a significant price swing, regardless of the direction.
