The US dollar moved close to a two-month high on September 29, 2026, as higher oil prices and a sharp rise in US Treasury yields gave fresh support to the currency. The move came at a key point for global foreign exchange markets, as traders awaited new US economic data for clues about the next steps from the Federal Reserve.
The dollar has gained broad support in recent sessions. Higher energy costs have raised concern about inflation, while stronger US economic data has added to expectations for more Federal Reserve rate hikes. Higher US interest rates can make dollar assets more attractive because they can offer better returns.
The dollar index, which measures the US currency against a group of major currencies, was close to a two-month high. Earlier in the session, the index stood near 101.27 and was on course for a 1.8% gain for September. That would mark its best monthly result since June.
The move was not limited to one currency pair. The euro, British pound and Swiss franc all came under pressure against the dollar. The euro fell as low as $1.13325, its weakest level in three months. The pound dropped to $1.3221, while the Swiss franc stood at 0.8335 per dollar, its weakest level in four months.
Oil prices add to dollar support
One major reason behind the latest dollar move is the sharp rise in oil prices. Brent crude stood near $104.5 a barrel. Oil prices have stayed at a high level due to global supply concerns and the wider US-Iran situation.
High oil prices matter for currency markets because they can add pressure to consumer prices. When energy costs rise, businesses and households can face higher expenses. This can push inflation higher if the rise lasts for a long period.
For the Federal Reserve, this creates a difficult policy picture. If inflation stays high, the central bank may need to keep rates high for longer or raise them again. Such a view can support the US dollar because higher US rates can increase demand for dollar assets.
The connection between oil, inflation, interest rates and currencies has become a major theme in the market. A fresh rise in oil can lift inflation fears. Those fears can raise expectations for higher US rates. Higher rate expectations can then lift Treasury yields and give the dollar more support.
This chain has played a major role in the dollar move on September 29.
US Treasury yields give the dollar another boost
US Treasury yields have also moved higher, which has added another source of support for the dollar.
The two-year US Treasury yield is especially important for the foreign exchange market because it reacts closely to expectations for Federal Reserve policy. On September 29, the two-year yield moved close to 5%, its highest level in more than two years.
The rise in yields shows that investors see a greater chance of more rate hikes from the Federal Reserve. The market now sees more than a 70% chance of a Fed rate hike at the end of October. A week earlier, that probability was about 57%, based on the CME Group’s FedWatch tool.
This shift has changed the tone of the currency market. A few weeks ago, many traders had expected the dollar to lose some of its strength later in the year. The latest rise in US yields has forced some of those views to change.
Morgan Stanley now expects the US dollar to stay strong through the end of 2026 and into 2027. The bank also expects the euro to fall to $1.10 by the middle of 2027. Its view is based on stronger US growth, wider interest rate differences and higher risk linked to Europe.
Euro falls to $1.13325
The euro has faced strong pressure against the dollar. EUR/USD fell as low as $1.13325 on September 29. That was a three-month low.
A further fall below its late-June levels could take the euro to its weakest point in more than a year. The euro has already lost about 2% against the dollar in September, based on a Reuters analysis published today.
The euro faces pressure from both sides. The dollar has gained support from US rates and economic data, while the euro faces concerns about energy costs and political risk in Europe.
Europe is more exposed to high energy costs than the United States in several areas. A long period of high oil prices could put more pressure on European households and companies. That could hurt economic activity at a time when the region already faces political and fiscal concerns.
European Central Bank President Christine Lagarde has also pushed back against some aggressive market expectations for future ECB rate hikes. That has created another difference between the US and European rate outlook.
If US rates stay higher while European rates rise at a slower pace, the gap between US and European yields can remain wide. That gap can support the dollar against the euro.
Pound remains close to a three-month low
The British pound also lost ground against the US dollar. GBP/USD fell to around $1.3221 on September 29.
The pound has remained close to its three-month low from last week. Like the euro, sterling faces pressure from a strong US dollar and high US Treasury yields.
The Bank of England has faced its own inflation concerns. Yet the US rate outlook has become a key factor for GBP/USD. Even if UK rates stay high, a stronger US rate outlook can still support the dollar against sterling.
The pound was down about 0.25% at $1.3221 in one part of Tuesday’s session, while the euro fell about 0.32% to $1.13325. These moves show that the dollar’s strength was broad rather than limited to one major currency pair.
Why the Federal Reserve matters so much
The Federal Reserve remains at the center of the latest currency move.
The main question for traders is whether US inflation will remain high enough to justify another rate hike. Recent oil price gains have made that question more important.
The next major US data releases could provide fresh clues. The PCE price index is due on Wednesday, while the US nonfarm payroll report is due on Friday.
The PCE price index has a special role because it is one of the key inflation measures watched by the Federal Reserve. A strong result could add to rate hike expectations. A softer result could reduce some of that pressure.
The payroll report will also matter because the US jobs market remains a key part of the Fed’s policy view. Strong job data can support the case for higher rates if it also adds to wage and inflation pressure.
For the dollar, the market reaction may depend not only on the data itself but also on how Fed officials respond to it.
Oil, yields and the dollar form a close link
The current market shows a clear link between three major factors: oil prices, Treasury yields and the US dollar.
When oil prices rise sharply, inflation risks can increase. When inflation risks increase, traders can expect the Federal Reserve to keep rates high for longer. That can push Treasury yields higher.
Higher Treasury yields can then support the dollar. Investors may see US assets as more attractive when they offer higher returns than similar assets elsewhere.
This does not mean the dollar must rise every time oil prices move higher. Currency markets also react to growth, political risk, central bank policy and investor demand for safer assets.
However, the current setup has created a strong connection between energy prices and the dollar.
The 10-year US Treasury yield also moved sharply higher on September 29. In a related Asian currency report, the 10-year yield was reported above 5.27%, a level not seen in 19 years. That move placed further pressure on several emerging-market currencies.
Other currencies also face dollar pressure
The dollar’s strength has spread across several major and emerging-market currencies.
The Swiss franc fell to 0.8335 per dollar, its weakest level in four months. The Japanese yen traded near 157.3 per dollar. The yen had gained some ground earlier but gave back part of that move after Japanese officials repeated warnings about excessive weakness.
The Australian dollar also showed why a central bank rate hike does not always lead to a stronger currency.
The Reserve Bank of Australia raised its cash rate to 4.60% on September 29, a 15-year high. Yet the Australian dollar fell to around $0.6988 after an early move to $0.7029.
The reason was the tone around the decision. RBA Governor Michele Bullock said the board had considered both a rate hold and a 25-basis-point hike. The market had perhaps expected a stronger signal, so Australian yields fell and the currency followed.
What this means for the dollar ahead
The dollar now enters an important part of the week.
The US PCE inflation report on Wednesday and the nonfarm payroll report on Friday could have a large effect on rate expectations. Strong data could add support to the dollar if traders see a greater chance of another Fed hike.
Weak data could have the opposite effect. If inflation and employment data lose strength, the market may reduce its expectations for further rate increases. That could take some support away from Treasury yields and the dollar.
This makes the next few sessions important for EUR/USD, GBP/USD and other major currency pairs.
The current figures show a clear picture. The dollar index is close to a two-month high and is on course for a 1.8% monthly gain. EUR/USD has fallen to $1.13325. GBP/USD has dropped to $1.3221. Brent crude is near $104.5 a barrel, while the US two-year Treasury yield is close to 5%.
The bigger picture for Forex
The September 29 move shows how quickly currency markets can react when several major forces point in the same direction.
The US dollar has received support from higher oil prices, stronger US data and higher Treasury yields. At the same time, the euro and pound have faced their own economic and political concerns.
The Federal Reserve will remain the main focus for the dollar. The market now sees more than a 70% chance of a rate hike at the end of October, compared with 57% a week earlier.
For now, the dollar remains firm near its two-month high. The next major test will come from US inflation and jobs data. Those reports can either support the current view of higher US rates or force traders to change their expectations.
For the foreign exchange market, that difference matters. A longer period of high US rates can keep the dollar strong, while any clear sign of weaker inflation or weaker economic activity could reduce that support.
As of September 29, the central story remains simple: high oil prices have added to inflation concerns, US Treasury yields have moved higher, and expectations for more Federal Reserve rate hikes have given the dollar fresh strength.
Also Read – September FX Calendar: Fed, Oil, RBI and Trade
