DBS Group Research reported that the first day of the Trump–Xi summit in China supported the US dollar, after President Trump focused on economic co-operation and trade rollbacks. It also noted that the move in the dollar was described as a correction, not the start of a lasting uptrend.
US Treasury Secretary Scott Bessent said an oil supply shock may be temporary, and that the recent price surge could end within weeks or months. The note linked these remarks to efforts to calm market reactions.
It referenced the US Treasury 10-year yield rising from 3.94% to 4.48% since the start of Operation Epic Fury. It also said markets have been shifting expectations for the Federal Reserve from rate cuts to possible hikes later in the year.
The report added that the Trump administration is considering ways to keep the Fed on hold while maintaining an easing bias ahead of the November midterms. It concluded that the dollar’s strength was framed as a corrective adjustment after April’s sell-off tied to off-ramp hopes.
Looking back at the analysis from 2025, the view that the dollar’s strength was a temporary correction, not a new uptrend, appears to be holding. The dollar has struggled to maintain upward momentum since the post-summit rally last year. Currently, the US Dollar Index is hovering around 105.50, repeatedly failing to break decisively higher.
The latest Consumer Price Index reading for April 2026 came in hotter than expected at 3.6% year-over-year, keeping pressure on the Federal Reserve. This persistent inflation is causing markets to price in the possibility of a summer rate hike, directly opposing the administration’s preference for a pause ahead of the November midterms. This tension between policy and politics is creating significant uncertainty for the dollar’s direction.
Given this backdrop, we anticipate choppy, range-bound price action for the dollar rather than a clear directional trend in the coming weeks. The CBOE Volatility Index (VIX) has climbed to 19, reflecting growing nervousness about the Fed’s next move and a recent Non-Farm Payrolls report that missed expectations at 160,000 jobs. We see an opportunity in using options strategies, like short-term strangles on major currency pairs, to capitalize on this sideways movement while collecting premium.
We are also watching the Treasury market closely, recalling the spike in the 10-year yield to 4.48% during “Operation Epic Fury” last year. With the 2-year Treasury yield now at 4.85% and the 10-year at 4.55%, the yield curve has become more inverted, signaling economic concerns despite the Fed’s hawkish tone. Derivative traders could consider trades that bet on this inversion deepening if the Fed is forced to hike into a slowing economy.
