The US Dollar Index (DXY), which measures the US dollar against six major currencies, rose after opening weak near 97.50. It turned slightly positive to about 97.75 during European trading on Thursday.
The US dollar recovered after the US Supreme Court ruled against President Donald Trump’s tariff policy. Market participants focused on the possibility that the US will keep trade deals with other nations in place.
Dollar Rebound And Trade Deal Focus
On Friday, the Supreme Court said Trump used emergency economic powers to support his tariff plans and struck down reciprocal duties. Trump then announced 10% global duties to maintain tariff pressure on countries with which the US has trade deals.
On Tuesday, US Trade Representative Jamieson Greer said tariffs could be raised to 15% or more for some countries from the new 10% level. He did not name which trading partners could face higher rates.
Traders expect the Federal Reserve to keep interest rates unchanged at the March and April meetings, based on the CME FedWatch tool. On Wednesday, St. Louis Fed President Albert Musalem said current policy settings suit the balance between employment and inflation risks.
The dollar is showing some resilience today, climbing back toward 97.75 despite the Supreme Court ruling against the administration’s specific tariff authority last Friday. This reaction suggests we are weighing the new 10% global tariff threat against a Federal Reserve that appears firmly on hold. This tension between unpredictable trade policy and stable monetary policy will likely define trading for the next few weeks.
Volatility And Policy Crosscurrents
The threat of raising duties to 15% or more on unnamed nations creates significant headline risk, which directly impacts options pricing. We’ve already seen the Cboe EuroCurrency Volatility Index (EVZ) climb to 8.5, its highest level in three months, reflecting this nervousness. This suggests that strategies buying volatility, such as straddles on major currency pairs, could be well-positioned for any sharp moves.
The Federal Reserve’s steady stance provides a crucial anchor, a view supported by the latest January 2026 inflation report showing a manageable 2.8% CPI reading. According to the CME FedWatch tool, the market is pricing in a greater than 90% chance of rates remaining unchanged through the April meeting. This makes aggressive directional bets on interest rate futures less attractive than plays on currency volatility itself.
This environment is highly reminiscent of the trade disputes we navigated back in 2018 and 2019. During that time, unexpected policy announcements caused sharp, short-lived spikes in the DXY. For this reason, positions with defined risk, like long call or put options, should be favored over holding outright futures contracts that carry unlimited risk.
For the next few weeks, we should expect the DXY to be caught in a choppy range as markets await clarity on tariff targets. The latest trade data for January 2026 showed the trade deficit unexpectedly widened to $72 billion, suggesting the tariff policies enacted last year have yet to achieve their stated goals and increasing the odds of further market-moving actions. This makes range-bound strategies with built-in protection appealing, but stops should be kept tight.
