The US Dollar weakened after a Supreme Court ruling that President Donald Trump exceeded his authority when he imposed wide global tariffs on most US trading partners. New 15% tariffs were then announced under a different law.
The Dollar had been steady earlier after US data releases, including personal consumption expenditure. The Dollar index (DXY) ended Friday at 97.79, down 0.13%, after hitting a low of 97.58.
Market Focus Shifts To New Tariff Plan
Attention now turns to Trump’s new tariff plan, alongside upcoming US data and Federal Reserve communication. Trump’s State of the Union is also listed as a potential driver of DXY and wider Dollar sentiment.
The US economic calendar begins tonight with the Chicago Fed national activity index for January. The piece notes it was produced with assistance from an AI tool and reviewed by an editor.
We saw a similar situation last year when a Supreme Court ruling on tariffs caused a sharp, albeit temporary, dip in the DXY. This serves as a reminder of how quickly political headlines can override economic data. The key takeaway for us was the resulting spike in short-term volatility, not necessarily a sustained directional change.
Given the current uncertainty, implied volatility in forex options is increasing. The Deutsche Bank FX Volatility Index (CVIX) has ticked up to 7.8, its highest point this year, showing that the market is pricing in larger-than-usual price swings for the dollar. We should therefore focus on strategies that profit from volatility itself, rather than trying to predict the direction of the next move.
Positioning For Volatility Rather Than Direction
Buying options straddles on major pairs like EUR/USD ahead of key events, such as the upcoming Federal Reserve statements or trade announcements, could be a prudent move. This allows us to profit from a significant price swing in either direction. This approach proved effective for many of us during the tariff confusion of 2025.
Looking back at the historical data from the 2018-2019 trade disputes, we remember that initial tariff headlines often caused the DXY to move more than 0.75% within a 24-hour period. Last year’s event mirrored this pattern, and we anticipate similar knee-jerk reactions in the coming weeks. This suggests that holding unhedged, short-term directional bets is exceptionally risky right now.
For traders with existing long-dollar portfolios, purchasing out-of-the-money puts on a dollar index ETF like UUP offers a cost-effective hedge against a sudden downturn. The market is currently pricing in a 35% probability of the DXY touching 96.50 within the next 30 days. This makes portfolio protection a critical consideration leading into March.
