BBH said the USD index (DXY) is trading near the middle of a 96.00–100.00 range that has held since June. It expects this range to hold in the near term. The dollar is mostly following interest-rate gaps, and there are no near-term catalysts that would likely change major central bank rate expectations.
BBH is more negative on the dollar over the longer term. It links this to concerns about confidence in US trade and security policy, US fiscal credibility, and possible politicisation of the Fed.
Fed Patience And Consumer Resilience
The note said the Fed can afford to be patient before it starts cutting rates again. That view is supported by stronger February consumer data. The Conference Board Consumer Confidence index rose more than expected. The labour differential index increased to 7.4 from 6.8 in January, and six-month job expectations improved to -10.4 from -13.9.
It also highlighted comments from Fed officials that played down near-term rate cuts. Core inflation is still near 3%, and unemployment has been steady. Kansas City Fed President Jeff Schmid and St. Louis Fed President Alberto Musalem were scheduled to speak. Schmid previously voted to keep rates unchanged at the October and December 2025 FOMC meetings.
With the DXY stuck between 96.00 and 100.00, the near-term approach is to trade the range. Implied volatility in major currency pairs has fallen sharply. The FX Volatility Index recently dipped below 7.0 for the first time since Q3 2025. This setup can favor selling options—such as EUR/USD straddles—to collect premium while the market waits for a new trigger.
Even so, we remain structurally bearish on the dollar because concerns about US fiscal credibility are rising. The Congressional Budget Office’s January 2026 report projects public debt-to-GDP will exceed 110% this year. That level can weigh on long-term confidence. These fiscal concerns are a key reason we expect the dollar to eventually break below its current range.
Traders may want to use income from short-term, range-based strategies to fund longer-term bearish positions. One approach is to buy long-dated put options on the DXY, with expiries in late 2026 or early 2027. This can be a relatively low-cost way to position for a break below the 96.00 support level. A similar pattern played out from 2002 to 2004, when a period of range trading was followed by a multi-year dollar decline tied to structural deficits.
Positioning For A Range Break Lower
The Fed’s patient stance, reinforced by recent official comments, helps support this two-step approach. Better-than-expected February consumer confidence—especially the jobs differential index rising to 7.4—gives the Fed room to keep rates steady for now. This delay in easing keeps the dollar pinned in its current range and creates time to prepare for potential weakness later.
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