The US Dollar strengthened late on Wednesday after hawkish language in the Federal Reserve’s January meeting minutes. The US calendar includes December Goods Trade Balance data and weekly Initial Jobless Claims, with markets also watching geopolitical developments.
The minutes said the Fed is not acting with a one-way bias, and several officials preferred more two-sided wording for future decisions. It noted rate rises could be appropriate if inflation stayed above target, and the USD Index rose by more than 0.5% to near 97.80 before holding around 97.70.
Geopolitical Tensions And Market Pricing
CBS News reported that the US military is preparing for possible strikes on Iran as soon as Saturday. It said the USS Abraham Lincoln carrier group is already in the region, the USS Gerald Ford is on its way to the Middle East, and gold traded above $5,000.
Australia’s unemployment rate stayed at 4.1% in January versus a 4.2% forecast, while employment rose by 17.8K against a 20K estimate. AUD/USD traded above 0.7050.
New RBNZ Governor Anna Breman said policy will adjust if the inflation outlook changes, to return inflation to target. NZD/USD rebounded to about 0.5980, up more than 0.3% after falling over 1% on Wednesday.
EUR/USD fell about 0.6% on Wednesday before trading near 1.1800 early Thursday. GBP/USD dropped over 0.5%, hit 1.3480, then recovered towards 1.3500, while USD/JPY traded near 155.00 after rising almost 1%.
Looking back at this time in 2025, we saw a hawkish Federal Reserve boost the US Dollar on fears of persistent inflation. Now, the situation is quite different as the Fed is holding rates steady, with the most recent Consumer Price Index data from January 2026 showing inflation at 2.9%. This suggests that options betting on a surprise rate cut could see increased volatility, even if the dollar remains relatively strong.
Key Takeaways For Traders Right Now
A year ago, direct military threats against Iran pushed Gold to extreme highs, creating a massive geopolitical premium. Today, while global tensions remain, the acute threat has subsided, and we see Gold trading much lower, around $2,150 an ounce. This means traders should be wary of paying too much for call options on Gold based on headline risks, as the market seems less sensitive than it was in 2025.
The market was focused on weekly jobless claims data back then, and that remains a key focus for gauging the economy’s health. The latest figures show initial jobless claims at 212,000, which is still historically low and signals a resilient labor market. This continued strength gives the Fed cover to delay any potential rate cuts, which could create headwinds for equity index futures in the coming weeks.
In February 2025, the dollar was climbing aggressively against the Yen, pushing towards 155 based on the Fed’s strong stance. We are now trading lower, near the 150 level, but the risk of intervention from Japanese authorities feels much more immediate than it did then. Traders should consider buying cheap, out-of-the-money puts on USD/JPY as a hedge against sudden government action.
Last year, currencies like the Euro and Sterling were struggling against a broadly strengthening dollar. While the dollar’s momentum has slowed, recent data shows European inflation remains sticky, and the Bank of England is still signaling a cautious stance on policy. This divergence suggests that cross-currency pairs, like EUR/GBP, might offer clearer trading opportunities than simply betting against the US Dollar.
