The US Dollar Index (DXY) reached a two-week high on Thursday and traded near 98.83, rising for a third day. The move followed fresh US data that increased expectations that the Federal Reserve may keep rates higher for longer.
US Retail Sales rose 0.5% month-on-month in April, the same as forecasts and down from 1.6% in March. The Retail Sales Control Group also increased 0.5%, after 0.8% the month before.
Earlier in the week, US CPI and PPI readings came in above expectations, moving inflation further from the Fed’s 2% target. The CME FedWatch Tool showed a 42% probability of a rate rise at the December meeting, up from about 33% a day earlier.
Kansas City Fed President Jeff Schmid said the US economy is “less vulnerable” to global oil disruptions than before. He said high oil prices “drain household spending power” and “raise business costs”.
Markets also tracked stalled US-Iran peace talks and a Trump–Xi summit in Beijing. Trump said Xi offered help on Iran and supports reopening the Strait of Hormuz, which carries about 20% of global oil shipments.
DXY held above the 200-day SMA at 98.53 and below the 50-day SMA at 98.99, with RSI at 54.15 and a slightly positive MACD histogram. Resistance levels were 98.99, 99.50, and 100.50, with support at 98.53 and 97.50.
We are seeing the US Dollar Index strengthen considerably, pushed by expectations that the Federal Reserve will hold rates higher for longer. The latest Consumer Price Index report for April 2026 showed core inflation at an unexpectedly firm 3.6%, fueling this sentiment. This is causing traders to unwind bets on summer rate cuts, with the CME FedWatch Tool now showing less than a 20% chance of a cut before September.
This situation feels familiar, reminding us of a similar pattern we saw developing in mid-2025. Then, a series of strong jobs and manufacturing reports also forced a hawkish re-pricing of Fed policy. Those who positioned for dollar strength in that period saw significant gains as the index rallied.
Given the current momentum, one approach is to buy call options on dollar-tracking ETFs like UUP for the coming weeks. This provides direct upside exposure if the DXY breaks above the key 105.50 resistance level. These options offer a defined-risk way to capitalize on the view that strong economic data will continue to support the greenback.
Looking back, we saw a much more extreme version of this dynamic throughout 2022. During that period, the Fed’s aggressive hiking cycle propelled the DXY to a 20-year high above 114. This history shows how powerful a hawkish Fed narrative can be for the dollar, even when other economies are also tightening.
Alternatively, a strong dollar implies weakness elsewhere, particularly against currencies with more dovish central banks. We believe buying put options on the Japanese Yen (via FXY) is a compelling trade. The Bank of Japan’s continued reluctance to tighten policy creates a sharp divergence that a strong dollar can exploit.
The Dollar Index is holding firmly above its 50-day moving average near 104.80, which we see as a critical support level. As long as it remains above this mark, the technical picture favors further upside toward the 106.00 area. This technical strength reinforces the fundamental case for bullish derivative plays on the dollar in the near term.
