If the greenback has felt unshakable lately, you are not imagining it. The upswing that kicked off with the Fed's first rate increase in three years is still running, reinforced by policy makers talking tough on inflation. Solid US data and renewed inflation worries have been tailwinds.
Energy markets have stayed firm amid the war in Iran, and that backdrop has pushed Treasury yields to historical highs. The 30-year yield climbed to a level last seen in 2002 as investors digested the inflation risk from elevated fuel costs.
Pricing across rates markets now reflects almost one percentage point of additional Fed hikes over the next 12 months, a setup that has buoyed the dollar. Options markets lean the same way, with risk reversals near their most pro-dollar readings since June. TD Securities' head of foreign-exchange strategy, Jayati Bharadwaj, said, "The dollar has continued to take its cue from US data." "US data surprises are the directional signal for the dollar in the near term and whether the Fed can hike close to how much the markets are priced for."
Hawkish commentary has kept that theme alive. On Tuesday, Fed Governor Michael Barr said the effort to cool inflation probably calls for further increases in interest rates, while New York Fed President John Williams said one additional hike "may be appropriate late this year to support a timelier return of inflation to target." Wider rate differentials and resilient US growth have also forced skeptics to backtrack. Morgan Stanley recently dropped its long-standing call for a weaker dollar in the second half of 2026.
A rising dollar helps your purchasing power in some places and hurts it in others, and most people never plan for either. Our CEO Jaspreet Singh wrote ABB: Always Be Buying, a free e-book that walks through the step-by-step investing system we use to build wealth through any market. Get the free e-book.
Some gauges say this run might be getting stretched. A momentum measure for the dollar topped 70 on Tuesday, a classic overbought signal, and Bloomberg's dollar relative strength index flashed an overvalued reading on Sept. 24. "We think the dollar is beginning to look stretched," said Noah Buffam, a strategist with CIBC Capital Markets. At Goldman Sachs Group Inc., Kamakshya Trivedi, the firm's global head responsible for FX and interest-rate forecasting, anticipates the dollar will remain in its present range and sees the Fed delivering one more rate hike in October.
Friday's September jobs report is the next stress test for those aggressive tightening bets. Before that, the US will post August personal consumption expenditures data on Wednesday, the inflation gauge the Fed prefers. Across major currencies, the dollar has been dominant this month, with every Group of 10 currency except the yen losing ground. The yen's support comes from the rising risk of Japanese authorities stepping into currency markets and from the belief that the Bank of Japan will push through additional rate hikes.
Currency cycles turn. A buying system does not have to. ABB: Always Be Buying is Jaspreet Singh's free e-book on how to keep putting money to work when the headlines get loud. Send me the e-book.
