The US Dollar rose against major currencies on Monday. The USD Index (DXY) moved back above 98.00 after rebounding from 97.70 on Friday, but stayed in the lower part of its recent trading range.
US–Iran verbal tensions increased after President Donald Trump said a plan to free vessels stranded in Iran would start on Monday. Trump gave no further details, while Tehran said any US military entry into Iran’s waters would breach the ceasefire and would be met with “full strength”.
Dollar Strength Amid Rising Tensions
Oil prices rose after Trump’s announcement. US benchmark West Texas Intermediate (WTI) traded a few cents below $100, which reduced demand for riskier assets and put pressure on the Euro and the Japanese Yen.
In the US data calendar, attention was on March Factory Orders. Later in the week, markets were set to follow April job reports, including Friday’s Nonfarm Payrolls.
These labour figures were in focus after last week’s Federal Reserve meeting. The meeting showed a more hawkish stance, with three dissenters opposing the inclusion of an “easing bias” in the statement.
We remember how the US Dollar Index bounced from the 97.70s to above 98.00 around this time in 2025, driven by escalating verbal tensions with Iran. That risk-off sentiment was a key factor in the market, pushing capital into the perceived safety of the dollar. The situation today, however, presents a different landscape for traders.
Shifting Market Drivers
Last year’s conflict fears sent West Texas Intermediate crude oil soaring towards the $100 mark, acting as a major headwind for energy-importing economies. Today, WTI is trading at a much calmer $81 a barrel as those specific geopolitical risks have faded and global production has stabilized. This shift means currency derivative pricing should be less sensitive to Middle East headlines and more tuned to economic supply and demand fundamentals.
The Federal Reserve’s hawkish tone in 2025, which saw three members dissent against an easing bias, was a primary driver that eventually propelled the DXY to its current level of 105.50. Now, after a long period of restrictive policy, recent data like the April jobs report, which came in at a softer-than-expected 175,000, suggests the economy is finally cooling. We should now be positioning for a potential dovish pivot from the Fed, a stark contrast to the hawkishness of a year ago.
Given this, strategies that were effective in 2025 may now be outdated. With lower energy costs helping Europe and the Fed signaling a potential peak in rates, derivative plays like buying EUR/USD call options to bet on a rising Euro could offer value. We should also be wary of the high volatility that could hit the Japanese Yen, as any confirmed Fed easing might quickly unwind profitable carry trades.
