The US Dollar Index (DXY) stayed near 99.10 late in the US session, helped by safe-haven demand and expectations that the Federal Reserve will stay cautious on easing. The latest FOMC Minutes indicated officials are not in a hurry to cut rates and are maintaining a higher-for-longer approach.
The Minutes also pointed to concerns about persistent inflation risks, including higher energy prices linked to Middle East hostilities. The Fed noted some cooling in parts of the economy, but described inflation progress as uneven.
Geopolitical Risk And Market Skepticism
Geopolitical news remained mixed, with reports of a temporary ceasefire involving the United States, Iran and Israel. Markets showed doubt as conditions linked to the agreement were not yet met and tensions continued in the region.
EUR/USD rose towards 1.1720 before easing to about 1.1650, while GBP/USD traded near 1.3380 after reaching 1.3484. USD/JPY moved down towards 158.70, and AUD/USD held near 0.7030 after earlier trading around 0.7080.
WTI oil fell to $95.00 per barrel, while gold traded near $4,709. Upcoming data includes Germany trade balance, US PCE, US GDP, US initial jobless claims, US personal income and spending, NZ PMI, and China CPI and PPI on April 9; then Germany HICP, Canada jobs, US CPI, US factory orders, US Michigan consumer index, US UoM inflation expectations, and the US monthly budget statement on April 10.
The Federal Reserve’s commitment to a “higher-for-longer” rate policy is keeping the US Dollar strong. We should prepare for this trend to continue, especially with key PCE and GDP data coming out today. This data will likely reinforce the Fed’s cautious stance on inflation, adding further support to the dollar.
Given this outlook, we should consider buying put options on pairs like EUR/USD and AUD/USD, targeting expiries in May or June to capitalize on sustained dollar strength. We saw how sticky Core PCE remained above the Fed’s target throughout late 2025, consistently printing around 2.8%. Any similar upside surprise in today’s data could trigger a sharp downward move in these pairs.
Positioning For Volatility
With conflicting headlines from the Middle East and the upcoming US CPI report, market volatility is a near certainty. A straddle on an S&P 500 ETF or the VIX itself could be a prudent way to trade the uncertainty without picking a direction. This protects us from being on the wrong side of a sudden geopolitical flare-up or a surprising inflation print.
The recent drop in WTI to $95 offers a potential entry point for bullish positions through call options. The market is skeptical of the ceasefire, and we only have to look back to the price shocks of late 2025 to see how quickly supply fears can cause a 10% weekly surge. These geopolitical premiums can reappear in an instant, making cheap calls an attractive risk-reward play.
While gold is a natural safe haven, its price near $4,709 makes it an expensive hedge right now. We can use bull call spreads to maintain upside exposure to geopolitical risk at a lower cost and with defined risk. This allows us to participate if tensions escalate further without taking on the full risk of an outright long position at these elevated levels.
