The Bloomberg Dollar Spot Index advanced for a fourth consecutive week, adding close to 3% across the stretch and marking the longest sequence of weekly advances since early 2025. While Friday's move was subdued, the backdrop of rising oil prices amid renewed attacks from Iran that could disrupt energy supplies has steered investors toward the greenback. Speculative traders boosted bullish bets on the dollar during the week ending Sept. 29, becoming more positive for a second week, according to Commodity Futures Trading Commission data.
Energy worries, Europe's budget jitters and a risk-off mood are all feeding dollar demand. "Risk off, fiscal concerns in Europe and fears of supply disruptions out of the Strait of Hormuz continue to push investors into the dollar given little alternative," said Sarah Ying, who leads FX strategy at CIBC Capital Markets. "Until oil prices come back down we see a period of sustained dollar strength."
Rate dynamics are another pillar. Last month, the Federal Reserve implemented its first rate hike in three years, and officials continue to signal the inflation fight is not over. "Part of the bull case for the dollar I think is the strong case for higher rates on a relative basis," said Robert Tipp, chief investment strategist, who also oversees global bond strategies at PGIM Fixed Income.
Fed Governor Christopher Waller indicated that further hikes will likely be needed, while emphasizing policymakers have flexibility on timing. Alberto Musalem, who leads the Federal Reserve Bank of St. Louis, argued that rates ought to rise over the next six-to-nine months, while refraining from endorsing an action at this month's policy meeting.
France's fiscal strains and higher energy costs have pressured the euro, pushing it down to its weakest since May 2025 earlier this week.
Oil and rate expectations push the dollar in the same direction often enough to matter. Market Briefs covers that link free every weekday.
The AI boom, together with a record run in U.S. equities that's pulling in foreign capital, has aided the dollar. "I'm bullish, at least in the short term, as money still flowing into the US because of the AI capex story being so strong, and that's leading to higher inflation and higher nominal growth," said Brent Donnelly, president of Spectra Markets. That tailwind comes with caveats: on Thursday, stocks slipped after OpenAI reported revenue below recent estimates, and investors are focused on November's U.S. midterms.
The election's outcome will decide which party holds Congress during the final two years in President Donald Trump's term. Polls indicate Democrats could capture at least one chamber, granting them the authority to introduce legislation. Several Wall Street strategists are positioning for the prospect of tighter AI regulation under Democratic leadership, warning it could spark a market selloff.
"The risk going into midterms, however, is that the dollar starts to lose a bit of shine," said Dominic Bunning, who heads G10 FX strategy at Nomura. He noted there is a chance Trump seeks to de-escalate on Iran in the run-up to the vote to get some relief on energy prices and bolster Republicans' odds. On Thursday, Trump said the US would not attack Iran before the November elections, after saying earlier this month that escalating military action against Iran was "possible" after the elections.
Right now, the dollar's strength reflects higher oil, relative rate expectations and foreign inflows into U.S. assets. "With global bonds and risk sentiment still looking fragile, and a hawkish Fed narrative keeping markets convinced of a December hike, we retain a preference for a slightly stronger dollar in the near term," wrote Francesco Pesole, who analyzes currencies at ING Groep NV. Translation for your wallet: the path of oil prices, Fed signals and midterm headlines can all sway the dollar, which filters through to travel costs, overseas purchases and the value of non-U.S. holdings.
A stronger dollar reprices debt and commodities worldwide. Join Market Briefs free and follow the move.
