The US Dollar Index (DXY) fell for a second day and traded near 97.50 during Asian hours on Monday. The drop followed uncertainty around US trade policy and weaker economic data. The US Supreme Court struck down most of President Donald Trump’s emergency tariff authority. Trump said he would still seek a 15% global import tariff, up from 10%, by using other trade laws.

Dollar Pressures From Data And Policy

US economic data also weighed on the dollar. The economy grew 1.4% in Q4 2025. Core PCE inflation rose 3.0% year on year in December. Geopolitical risks also kept markets cautious. The New York Times reported that Trump was considering limited airstrikes on Iran, with a wider attack possible if earlier steps fail. The US Dollar is the official currency of the United States and is also used in some other countries. It makes up more than 88% of global foreign exchange turnover, or about $6.6 trillion in daily transactions, based on 2022 data. Federal Reserve policy affects the dollar mainly through interest rates. The Fed targets 2% inflation. It can also use quantitative easing, which usually weakens the dollar, or quantitative tightening, which usually supports it.

Trading Implications For Currency Markets

With the US Dollar Index down to 97.50, markets appear to be reacting to a tough mix of slower growth and high inflation. Q4 2025 GDP of 1.4% alongside a 3.0% core PCE reading puts the Federal Reserve in a difficult position. This can make future policy moves hard to predict. Because of that, simply shorting the dollar may be risky, since demand for safe-haven assets could still support it. Trade-policy confusion plus geopolitical risk often leads to higher volatility. A useful comparison is the 2019 trade disputes, when currency-volatility gauges jumped more than 20% in short periods. As a result, traders may consider options strategies such as straddles or strangles on major pairs like EUR/USD, which can benefit from large moves in either direction. For traders already holding long-dollar positions, the risk of a new 15% global tariff creates meaningful downside. One way to hedge is to buy put options on the US Dollar Index or related currency futures. This can act as insurance against further policy-driven dollar weakness in the weeks ahead. We are also watching USD/JPY closely. The yen often acts as a key safe-haven currency when uncertainty centers on the US. If risk rises, the yen could strengthen more than the dollar, which could push USD/JPY lower. Options positioned for a decline in this pair could help protect against escalating global tensions. Reports about possible US airstrikes on Iran add another risk layer, especially for energy markets. In the past, similar Middle East tensions have pushed WTI crude more than 10% higher in just a few days. Traders may want to watch oil-options volatility, since higher energy prices would further complicate the inflation and growth outlook. Create your live VT Markets account and start trading now.

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