Insights 
VT 
The US Dollar Index appreciates, reaching 98.30, as Eurozone and Japan face political and fiscal turmoil, prompting flight to the US Dollar. The DXY, which measures the USD’s strength against six major currencies, recovers past losses from last week’s US Government closure.
In Japan, former assistant to PM Abe, Sanae Takaichi, wins LDP election, likely to become Prime Minister. Her potential return to “Abenomics” dampens expectations for further BoJ tightening. Meanwhile, France’s political crisis following PM Lecornu’s resignation causes Euro decline.
The Role Of The US Dollar
No major US data is released; Fed officials’ speeches guide USD movement. Bowman and Bostic support hawkish policies, while Miran is dovish.
The US Dollar is the official currency of the US and de facto elsewhere, making up over 88% of global forex turnover, with $6.6 trillion traded daily. It replaced the British Pound post-World War II as the world’s reserve currency.
The Federal Reserve influences USD value through monetary policy, targeting price stability and full employment. Interest rate adjustments maintain a 2% inflation target, while quantitative easing or tightening impacts the USD’s strength.
Given the US Dollar Index’s strength, we see a clear opportunity to favor long dollar positions against the Euro and Yen. The DXY at 98.30 is showing strong momentum, driven by genuine safe-haven flows as political instability brews in Europe and Japan. This is not just a technical move; it is backed by fundamental global weakness.
Opportunities And Risks
The hawkish tone from Fed officials Bowman and Bostic reinforces this view, especially as recent data shows core inflation remains stubbornly above the Fed’s target. September 2025’s Core PCE data, which we saw last week, came in at 3.1%, giving these officials little reason to consider easing policy. For traders, this points toward a firm floor under the dollar, making long USD call options an attractive strategy.
In Europe, the political turmoil in France is a significant drag on the Euro. The spread between French and German 10-year government bonds has widened to 85 basis points in the last week, a level not seen since the sovereign debt concerns of the mid-2020s. We should be considering put options on the EUR/USD pair to profit from further downside.
Meanwhile, the situation in Japan suggests the Yen’s decline is far from over. With Sanae Takaichi poised to reintroduce “Abenomics,” we anticipate further monetary easing, which has already pushed the USD/JPY exchange rate above the key 165 level. This is reminiscent of the policies that weakened the Yen through 2022 and 2024, making long USD/JPY futures a logical play.
The immediate technical level to watch for the DXY is the 98.60 top from the last six weeks. A decisive break above this level would signal a continuation of the upward trend and should be seen as a trigger for adding to long dollar positions. We should set alerts for this breakout, as it could attract a new wave of buyers.
With political headlines from Paris and Tokyo likely to cause sharp price swings, implied volatility in the currency options market has been rising. The 3-month implied volatility on EUR/USD, for example, has climbed over 15% in just the past two weeks. This suggests that while buying options might be more expensive, the potential for outsized moves makes it a worthwhile consideration.
