The US Dollar Index (DXY) fell towards 100.00 on Tuesday as demand for the US dollar as a safe haven eased amid hopes of a Middle East de-escalation. Reports said Donald Trump told aides he may end the war against Iran even if the Strait of Hormuz stays largely closed, while Iran’s president said Iran is seeking guarantees to prevent a repeat of the conflict.
Iranian state media said the IRGC plans to target US companies in the region, listing 18 firms including Microsoft, Apple, Google, Intel and Boeing. Despite this, US equities rose, with the Dow, S&P 500 and Nasdaq all posting gains.
Key Fx Moves
In FX, EUR/USD moved towards 1.1540, GBP/USD rebounded from around 1.3240, USD/JPY slipped towards 158.90, and AUD/USD rose near 0.6900 after five losing sessions. The US dollar was strongest against the Swiss franc.
WTI crude edged lower below $100 a barrel, while gold rose to about $4,670. The data calendar includes US ADP, retail sales and ISM on Wednesday; job cuts and jobless claims on Thursday; and nonfarm payrolls, unemployment and earnings on Friday.
WTI is a US crude benchmark traded via Cushing; its price is driven by supply and demand, geopolitics, OPEC decisions and the US dollar. API reports are released Tuesday and EIA Wednesday, with results within 1% of each other 75% of the time; OPEC has 12 members and meets twice yearly.
Looking back to this time in 2025, we saw the market reacting heavily to hopes of a de-escalation in the Middle East. The US Dollar Index was pushed down to the 100.00 level as its safe-haven appeal faded, while equities rallied on the positive geopolitical news. This created a complex environment where risk-on assets and traditional safe havens like gold both saw gains.
Gold And Risk Positioning
The most notable event from last year was the dramatic spike in Gold to nearly $4,670 per ounce, a move driven by fears of direct attacks on US companies. Today, Gold has stabilized around $2,355, showing that while the extreme fear premium has vanished, underlying demand for portfolio protection remains strong. We should consider using options collars on gold ETFs to protect against renewed volatility while capping upside potential.
Oil markets have also calmed considerably, with WTI now trading near $81 a barrel, well below the $100 levels seen during the 2025 tensions. Last week’s EIA report showed a surprise build in crude inventories of 3.2 million barrels, suggesting that demand may be softening slightly amid signs of a slowing global economy. This points to potential opportunities in selling call spreads on WTI futures, betting that prices will remain range-bound in the near term.
The US Dollar has completely reversed its weakness from last year, with the DXY now trading firmly above 105. This strength comes as persistent inflation data has forced the Federal Reserve to maintain a hawkish stance, a stark contrast to the de-escalation narrative that weakened the dollar in 2025. All eyes will be on this Friday’s Nonfarm Payrolls data, as a strong number could push the DXY even higher and weigh on pairs like EUR/USD, which is now far from its 1.1540 peak of last year.
While equities rallied on peace talks in 2025, the focus for the coming weeks is squarely on economic data. The most recent ISM Manufacturing PMI reading came in at 49.1, indicating a contraction in the manufacturing sector for the second consecutive month. This suggests we should be cautious and consider buying protective puts on major indices like the S&P 500 ahead of key employment and inflation reports.
