The US Dollar Index recovered some of its earlier losses and traded near 97.40 during European hours on Monday. At the time of reporting, it was down 0.2% at around 97.60 against a basket of six major currencies.
The earlier sell-off followed a US Supreme Court ruling against President Donald Trump’s tariff policy. The court said the tariffs were illegal because they were based on the International Emergency Economic Powers Act (IEEPA).
Dollar Volatility Outlook
After the ruling, Trump announced a 15% increase in import duties worldwide. He presented the move as a response to the court’s decision on his tariff plan.
US data also pressured the dollar, with slower growth and weaker business surveys. Q4 GDP grew 1.4% year-on-year, below forecasts of 3% and down from the prior 4.4%.
The S&P Global Composite PMI for February came in at 52.3, down from 53.0 in January. Both manufacturing and services still showed moderate growth.
Focus now shifts to speeches from several Federal Reserve officials this week. Their comments may offer clues about the outlook for US interest rates.
Options Hedging Strategies
Looking back at the policy whiplash in 2025, the main lesson was the jump in volatility after the Supreme Court’s tariff ruling and the market reaction that followed. This suggests that, in the coming weeks, buying options to protect against sharp moves in the dollar is a sensible approach. With the CBOE Volatility Index (VIX) still relatively low at around 14, options remain fairly priced, making hedges cheaper against unexpected political or economic headlines.
Policy uncertainty and the risk of a global trade slowdown pull the dollar in opposite directions. That makes a simple directional bet risky. Last year showed how fast the dollar can flip—from weakness after the court ruling to strength after the tariff threat. Because of this, traders may want to use straddles or strangles on major currency pairs like EUR/USD. These strategies can profit from a large move in either direction without needing to predict the outcome.
The weak 2025 data—such as 1.4% GDP growth—was an important warning sign that the economy was slowing. Today’s data should be viewed with that history in mind, especially since the latest January 2026 inflation report showed Core PCE still stuck at 2.8%. Persistent inflation limits the Fed’s ability to cut rates, even if growth weakens.
Given this backdrop, the Fed may sound cautious in upcoming speeches, which could keep rate expectations uncertain. This uncertainty is also visible in interest-rate markets, including the volatility skew in SOFR futures. Traders should be careful about taking large, unhedged positions that depend on the Fed’s rate path until the outlook becomes clearer.
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