The US Dollar Index (DXY) held near 98.00 in early European trading on Friday, close to an almost four-week high reached the previous day. The move followed the release of the Federal Open Market Committee Minutes from the January meeting.
The Minutes indicated that Federal Reserve officials are not moving quickly towards interest rate cuts. Inflation in the United States has remained above the Fed’s 2% target.
Key Data In Focus
Markets are watching preliminary US Q4 Gross Domestic Product (GDP) and S&P Global Purchasing Managers’ Index (PMI) figures due during North American hours. GDP is estimated at an annualised 3%, down from 4.4% in the third quarter of 2025.
S&P Global Composite PMI is expected to rise from 53.0, based on improved manufacturing and services activity. GDP is published quarterly by the US Bureau of Economic Analysis and is presented at an annualised rate.
The BEA issues an initial GDP estimate and then revises it twice more, with the third release treated as the final reading. Measures such as these are widely used to track overall US economic activity.
The US Dollar is showing strength around the 98.00 mark, and our view is that this will likely continue in the coming weeks. Federal Reserve officials are making it clear they will not rush to cut interest rates while inflation remains over their 2% target. This policy stance is the primary reason for the dollar’s current firmness.
Derivatives Trading Implications
We are looking ahead to the preliminary Gross Domestic Product data for the fourth quarter of 2025. The market expects a slowdown to 3% growth from the 4.4% we saw in the third quarter, but this is still a very solid figure; for comparison, the US economy grew by 3.3% in the final quarter of 2023. A strong number will reinforce the Fed’s patient approach and support the dollar.
This situation feels very similar to the long pause in rate hikes that we observed from mid-2024 into 2025. During that period, the “higher for longer” interest rate narrative kept the dollar well-supported against other major currencies. We anticipate a similar pattern to play out now as the market adjusts its expectations for rate cuts.
For derivatives traders, this points toward positioning for continued dollar strength, at least for the next several weeks. Buying call options on the US Dollar Index, or on dollar-tracking ETFs, is a straightforward way to gain upside exposure. This strategy is particularly relevant ahead of the February PMI data, as an improvement in economic activity would further delay any talk of rate cuts.
Uncertainty about the exact timing of the Fed’s eventual policy shift will create volatility, which can also be traded. We see an opportunity in using options to play potential price swings around key data releases. A long straddle on a major pair like the EUR/USD could be profitable if the GDP or PMI figures surprise the market significantly, causing a sharp move in either direction.
Finally, we should look at currency pairs where monetary policies are diverging most sharply. With the Fed on hold, shorting futures contracts on currencies whose central banks are signaling a greater willingness to ease policy offers a clear path. This creates a favorable environment for trades that are long the US dollar against those weaker currencies.
