Deutsche Bank’s Macro Strategy report shows a positive trend for the US Dollar, thanks to solid economic data. The ISM manufacturing index rose unexpectedly, boosting hopes for 2026. The Dollar Index increased by 0.66%, marking its best two-day performance since last spring.
The US Treasury markets responded strongly to the ISM data, with yields climbing as expectations for Federal Reserve rate cuts decreased. Futures had predicted an 87% chance for a rate cut by the June FOMC, but this dropped to 70% by the end of the trading day. The rise in yields helped the Dollar Index gain even more.
Analysis of ISM Manufacturing Data
The ISM manufacturing index recently jumped to 52.1, indicating the economy is performing better than expected. This surprising strength is making us reconsider when the Federal Reserve might start lowering rates this year. Consequently, the expectation for a June rate cut has significantly decreased.
Higher US Treasury yields are making the dollar more appealing, pushing the Dollar Index toward the 104.50 level. This is the best two-day performance for the dollar since the volatility seen in spring 2025. If future data confirms this economic strength, this upward trend could continue.
Strategies for Traders
For options traders, this change suggests buying call options on the US Dollar or put options on currencies like the Euro or Yen. With the Federal Reserve’s direction becoming less clear, we can anticipate increased implied volatility on currency pairs in the coming weeks. Consider strategies that benefit from a stronger dollar, such as buying USD/JPY calls, as the interest rate gap between the US and Japan widens.
This outlook is backed by the recent jobs report, which revealed that 225,000 jobs were added in January, exceeding expectations. Traders using futures should think twice about shorting the dollar, as momentum is clearly in favor of the dollar. With core inflation from late 2025 still above 3%, the data provides little reason for the Fed to act quickly in easing policy.
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