The US Dollar Index (DXY) stayed close to 98.00 in early European trading on Friday. It was near an almost four-week high reached a day earlier. The move came after the release of the Federal Open Market Committee (FOMC) Minutes from the January meeting. The Minutes suggested the Federal Reserve is not close to cutting interest rates. US inflation is still above the Fed’s 2% target.

Key Data In Focus

Markets are watching the preliminary US Q4 Gross Domestic Product (GDP) and S&P Global Purchasing Managers’ Index (PMI) data, due during North American trading hours. GDP is expected at an annualised 3%, down from 4.4% in the third quarter of 2025. The S&P Global Composite PMI is expected to rise from 53.0, supported by stronger manufacturing and services activity. The US Bureau of Economic Analysis (BEA) publishes GDP each quarter and reports it at an annualised rate. The BEA releases an initial GDP estimate and then revises it twice. The third release is treated as the final reading. Data like GDP and PMI are widely used to track overall US economic activity. The US Dollar is holding firm around 98.00, and we expect that strength to continue over the next few weeks. Fed officials have signalled they will not cut rates quickly while inflation remains above 2%. This policy message is the main reason the dollar is staying strong.

Derivatives Trading Implications

Next up is the preliminary GDP report for Q4 2025. The market expects growth to slow to 3% from 4.4% in Q3, but 3% is still strong. For comparison, the US economy grew by 3.3% in the final quarter of 2023. If GDP comes in strong, it would support the Fed’s slow-and-steady approach and help the dollar. This setup is similar to the long pause in rate hikes we saw from mid-2024 into 2025. During that period, the “higher for longer” theme kept the dollar supported against other major currencies. We expect a similar pattern as markets push back expectations for rate cuts. For derivatives traders, this argues for positioning for continued dollar strength over the next several weeks. One simple approach is to buy call options on the US Dollar Index, or on dollar-tracking ETFs, to gain upside exposure. This may be especially relevant ahead of the February PMI data, since stronger activity would likely delay any rate-cut discussion. Uncertainty around the timing of the Fed’s eventual shift can also drive volatility. That volatility can be traded. Options can be used to target price swings around key data releases. For example, a long straddle on a major pair like EUR/USD could pay off if GDP or PMI results are far from expectations and trigger a sharp move in either direction. Finally, it makes sense to focus on currency pairs where policy paths are separating the most. If the Fed stays on hold, selling futures on currencies whose central banks are more likely to cut rates can offer a clear opportunity. This favours trades that are long the US dollar versus weaker currencies. Create your live VT Markets account and start trading now.

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