The US Dollar Index rose 0.15% to about 97.85 in European trading on Tuesday, ahead of the US market open. It measures the dollar against six major currencies.
The move came as markets assessed a US Supreme Court ruling that struck down extra tariffs linked to President Donald Trump’s use of the International Emergency Economic Powers Act (IEEPA). The ruling had first weighed on the dollar due to doubts about the direction of US trade policy.
Trade Policy Tariffs And Dollar Direction
Trump later announced 15% global tariffs and warned of higher levies for countries that do not honour trade deals. These developments shifted attention towards further tariff steps.
The next focus is speeches from several Federal Reserve officials for signals on interest rates. Fed Governor Christopher Waller said he could support keeping rates unchanged at the March meeting after January job growth of 130K.
CME FedWatch data indicates traders expect the Fed to keep rates unchanged in March and April. The Fed’s inflation target is 2%.
The US dollar accounts for over 88% of global foreign exchange turnover, or about $6.6 trillion per day, based on 2022 data. It became the main reserve currency after the Second World War, and the gold link ended in 1971.
Derivative Trading Positioning And Volatility
We saw this playbook last year, in 2025, when the Dollar Index firmed up around 97.85 amid trade policy drama and talk of the Fed pausing. That situation was driven by a single strong jobs report, which at the time was around 130,000 new positions. The landscape today, in late February 2026, is quite different and demands a more aggressive stance.
The US dollar has shown considerable strength since then, with the DXY now trading consistently above 104. A key driver for this was the unexpectedly strong January 2026 jobs report, which added 353,000 positions, far exceeding forecasts and dwarfing the numbers we saw this time last year. This robust labor market suggests the economy can handle higher interest rates for a longer period.
Furthermore, inflation remains a persistent issue that the Federal Reserve cannot ignore. The most recent Consumer Price Index (CPI) reading for January 2026 came in at 3.1%, still significantly above the Fed’s 2% target. This sticky inflation, combined with the hot labor market, makes a compelling case against any near-term interest rate cuts.
For derivative traders, this points toward positioning for continued dollar strength in the coming weeks. Buying call options on the DXY or put options on the EUR/USD pair could be a direct way to capitalize on this trend. The economic data simply does not support the pivot to lower rates that some parts of the market were hoping for at the start of the year.
This environment also suggests that volatility may be underpriced. The lingering threat of sudden trade policy shifts, which we saw in 2025, creates an unpredictable backdrop. Traders should consider buying protection or speculating on sharp market moves by purchasing call options on the VIX index.
While the CME FedWatch tool indicates the market is still pricing in potential rate cuts later in the year, there is a clear disconnect with the hard data. This gap presents an opportunity for those trading interest rate futures and options. Betting against imminent rate cuts seems like a sensible strategy until we see a significant cooling in both employment and inflation figures.
