The dollar rally is forging ahead as soaring oil prices weigh on currencies of energy importing nations and global inflation fears persist. The Bloomberg Dollar Spot Index is extending its advance into a fourth week to notch a nearly 3% gain in the period — its longest winning streak since early 2025. Brent oil jumped Thursday amid fresh attacks from Iran threatening energy flows in the Middle East and pushing investors into the safety currency.
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, head of FX strategy at CIBC Capital Markets. Until oil prices come back down we see a period of sustained dollar strength. Further buoying the greenback is the US’ ability to withstand more interest-rate increases than other major economies. Fiscal concerns in France and high energy prices have put pressure on the euro, which touched the lowest level since May 2025 earlier this week.
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 and head of global bonds at PGIM Fixed Income. Last month, the Federal Reserve raised rates for the first time in three years, and central bank officials continue to signal more needs to be done to battle inflation. On Thursday, Fed Governor Christopher Waller said further hikes will likely be necessary, though officials have some flexibility on timing. Similarly, Federal Reserve Bank of St. Louis President Alberto Musalem said rates should be lifted over the next six-to-nine months, but stopped short of endorsing a move at this month’s policy meeting.
The dollar’s run, however, could be derailed by concerns over artificial intelligence spending and the US midterm elections in November. The greenback pared recent gains on Friday, with the Bloomberg Dollar Spot Index down 0.1%. So far, the dollar has benefited from the AI boom and subsequent record-setting rally in US stocks that have lured foreign investment. On Thursday, stocks sold off after Open AI reported revenue that was lower than recent estimates. Investors also worry about election results, which will establish the composition of Congress for the final two years of President Donald Trump’s term. Polls show the Democratic Party may take at least one chamber of Congress, getting the control to propose legislation. Some Wall Street strategists are positioning for a push from Democrats for tighter AI regulation, which could trigger a market selloff.
The risk going into midterms, however, is that the dollar starts to lose a bit of shine, said Dominic Bunning, head of G10 FX strategy at Nomura. There is a risk Trump looks to de-escalate on Iran in the weeks ahead of the vote, get a bit of respite on energy prices to help boost Republicans’ chances. Trump said Thursday the US would not attack Iran ahead of the November elections, after earlier this month saying a ramp-up of military strikes against Iran were “possible” following the elections. For now, speculative traders have added to their bullish stance on the dollar in the week through Sept. 29, turning more positive on the currency for a second week, Commodity Futures Trading Commission data show.
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.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing