The US Dollar Index rises to 98.30 as political and financial issues in the Eurozone and Japan lead to increased demand for the US Dollar. The DXY, which measures the USD against six major currencies, has recovered from losses that occurred during last week’s US government shutdown. In Japan, Sanae Takaichi, a former assistant to Prime Minister Abe, wins the LDP election and is likely to become the new Prime Minister. Her potential return to “Abenomics” lowers expectations for further tightening by the Bank of Japan. Meanwhile, France’s political turmoil, following the resignation of PM Lecornu, causes the Euro to drop.

The Role Of The US Dollar

No significant US economic data has come out recently; instead, speeches from Federal Reserve officials are impacting the USD’s movement. Bowman and Bostic are in favor of strict policies, while Miran leans towards a more relaxed approach. The US Dollar is the main currency in the US and is widely used globally, accounting for over 88% of all foreign currency transactions, with $6.6 trillion traded each day. It took over as the main reserve currency from the British Pound after World War II. The Federal Reserve affects the value of the USD through monetary policy aimed at keeping prices stable and achieving full employment. Changes in interest rates help to maintain a 2% inflation target, while quantitative easing and tightening can strengthen or weaken the USD. Given the current strength of the US Dollar Index, it is a good time to consider long dollar positions against the Euro and Yen. The DXY at 98.30 shows strong momentum driven by safe-haven buying as political unrest rises in Europe and Japan. This movement is supported by underlying global weaknesses, not merely technical factors.

Opportunities And Risks

The assertive tone from Fed officials Bowman and Bostic strengthens this perspective, especially since recent data shows that core inflation remains above the Fed’s targets. Last week, September 2025’s Core PCE data came in at 3.1%, giving these officials little reason to adopt a more relaxed stance. For traders, this suggests a solid foundation for the dollar, making long USD call options an appealing strategy. In Europe, the political crisis in France significantly impacts the Euro. The gap between French and German 10-year government bonds has increased to 85 basis points in the past week, a level not seen since the sovereign debt worries of the mid-2020s. We should look into put options on the EUR/USD pair to capitalize on further declines. In Japan, things do not look good for the Yen. With Sanae Takaichi likely to bring back “Abenomics,” we expect additional monetary easing, which has already pushed the USD/JPY exchange rate above the important 165 mark. This echoes the strategies that weakened the Yen between 2022 and 2024, making long USD/JPY futures a sensible choice. The key technical level to watch for the DXY is the 98.60 high from the last six weeks. A strong push above this level would indicate a continuation of the upward trend and should prompt us to add to long dollar positions. We should set alerts for this breakout, as it could attract many new buyers. With political news from Paris and Tokyo likely to create sharp price fluctuations, implied volatility in the options market for currencies has been on the rise. For example, the 3-month implied volatility for EUR/USD has increased by over 15% in just the last two weeks. While buying options may be pricier, the potential for significant movements makes it a worthwhile option to explore. Create your live VT Markets account and start trading now.

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