The US Dollar Index rose about 0.30% on Thursday, moving from around 99.56 to near 99.90, as demand for the Dollar continued for a third day. The index has gained more than three points from its February low near 96.00 and is close to 100.00 after pulling back from mid-March highs near 101.00. Iran rejected Washington’s 15-point ceasefire plan on Tuesday and issued five counter-demands, including war reparations and sovereignty over the Strait of Hormuz. The Strait remains closed to Western-allied vessels, and shipping analysts do not expect routine commercial transit to resume before year-end.

Dollar Demand Strengthens

Japan started releasing 30 days of state oil reserves on Thursday, and the Philippines declared a national emergency over energy supply. President Trump said on Thursday he was unsure about a Friday deadline to reopen the Strait, and said taking over Iran’s crude oil supply remains “an option”. The Fed held rates at 3.50% to 3.75% in March, with the dot plot still pointing to one cut this year. Powell called the conflict an “energy shock”, while Michael Barr said rates may need to stay high; markets have largely priced out near-term cuts. On charts, price was 99.92–99.93; support levels include 99.90, 99.76, 99.70, and 99.50–99.00, then 98.50, with resistance at 99.96, 100.00, 100.50, and 101.00. The current environment strongly favors the US Dollar, making it the primary safe-haven asset for the coming weeks. The combination of geopolitical risk from the Iran situation and a hawkish Federal Reserve creates a powerful tailwind for the greenback. We should position for the DXY to test and potentially break the critical 100.00 psychological level.

Risks And Positioning

The conflict in the Strait of Hormuz is acting as a significant energy shock, keeping risk aversion high. With Brent crude futures holding above $120 a barrel, this situation is reminiscent of the market turmoil we saw back in 2022 following the invasion of Ukraine. As long as the Strait remains closed, demand for the dollar as a haven will persist. The Federal Reserve’s stance reinforces this dollar strength, giving it a distinct yield advantage over other major currencies. The latest Consumer Price Index reading came in at 4.1%, well above the Fed’s target, justifying the decision to hold rates firm at 3.75%. This contrasts sharply with the European Central Bank, which we saw hesitate to act during the energy price spikes of 2025, leading to euro weakness. For derivative traders, this suggests maintaining a long dollar bias against currencies like the euro and yen. We see this reflected in the options market, where open interest in call options for the June DXY futures contract has surged, particularly around the 101.00 strike. Bull call spreads could be an effective way to play for further upside while defining risk. However, we must be mindful that the rally is showing signs of fading momentum. The daily chart indicates the move is getting stretched, so a sudden pullback is possible if tensions with Iran ease unexpectedly. Buying some cheap, out-of-the-money put options on the DXY or the UUP ETF for the coming month could provide a cost-effective hedge against a sharp reversal. The pressure on energy-importing economies like Japan and the Eurozone will likely keep their currencies weak against the dollar. We should expect pairs like EUR/USD to retest their lows from late 2025 if the DXY successfully breaks above 100.50. Risk reversals in EUR/USD continue to show a strong bias for puts, indicating traders are positioned for more downside. Create your live VT Markets account and start trading now.

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