Dollar Holds Weekly Gains
The DXY is still set for weekly gains amid ongoing Middle East tensions. Trading was calmer on Friday due to a lack of new headlines. University of Michigan data weakened, with the Consumer Sentiment Index at 53.3 in March versus 55.5 in the preliminary reading. The Consumer Expectations Index fell to 51.7 from 54.1. Inflation expectations increased, with the 1-year outlook rising to 3.8% from 3.4%. The 5-year expectation stayed at 3.2%. Richmond Fed President Thomas Barkin said higher petrol prices are weighing on sentiment and may reduce other spending. He said inflation progress risked stalling and described the labour market as fragile despite low unemployment.Oil And Rates Drive Markets
Donald Trump delayed planned strikes on Iran’s energy infrastructure by 10 days. With the Strait of Hormuz largely closed, oil prices stayed elevated, and traders priced in 2–3 ECB hikes by year-end while trimming expectations for Fed cuts. We remember how the Dollar paused around the 100 mark on the DXY in March of 2025, which gave the Euro a brief lift. A year later, the situation is quite different, with the Dollar Index now trading firmly above 104.50. This has pushed the EUR/USD pair down towards the 1.0750 level, showing sustained dollar strength. The inflation concerns from last year proved to be well-founded, as markets correctly priced in the European Central Bank’s subsequent rate hikes. The Fed, on the other hand, abandoned any talk of cuts and has held rates firm, with the federal funds rate currently in the 5.25% to 5.50% range. Recent US inflation data for February 2026, showing the Consumer Price Index at 2.8%, confirms that the battle is not yet over. With central bank policy rates expected to remain high, implied volatility in currency options is likely to stay elevated. This environment presents opportunities for traders to consider selling volatility, such as through short straddle or strangle strategies on EUR/USD, if we expect a period of range-bound trading. This approach benefits from time decay, which is accelerated in a high-interest-rate world. We must not forget the geopolitical risks that were present in 2025, as tensions in the Middle East remain a factor. While the acute crisis over the Strait of Hormuz has eased, crude oil prices continue to be a source of inflationary pressure, with WTI crude currently trading near $82 per barrel. Any escalation could quickly disrupt markets and undermine strategies based on stable conditions. Create your live VT Markets account and start trading now.
Start trading now – Click here to create your real VT Markets account
