U.S. Dollar Index Rises for Four Consecutive Weeks, Marking Longest Winning Streak Since Early 2025
nashnova research
The Bloomberg Dollar Spot Index has risen for four straight weeks, gaining nearly 3% — its longest winning streak since early 2025 — driven by surging oil, European fiscal worries, and Fed rate-hike expectations, though midterm-election risks and softening AI revenue are already seeding a potential reversal.
Why has the dollar rallied for four straight weeks?
Three forces converged: surging oil prices (Iran attacked Middle East energy routes) + European fiscal stress (France's deficit troubles) + Fed rate-hike expectations.
This means → capital has few alternatives. CIBC FX strategy head Sarah Ying put it plainly: "There is almost no substitute."
In plain terms = oil up, Europe weak, the U.S. still hiking — money has one place to go.
Who does the oil spike hurt most?
Brent crude jumped sharply Thursday after Iran launched a fresh strike near the Strait of Hormuz — the chokepoint through which roughly one-fifth of the world's oil shipments pass.
Supply-disruption risk hammered energy-importing currencies; the euro hit its lowest level since May 2025 earlier this week.
This reflects a broader dynamic: oil is not just a commodity story — it is an FX story. The more a country imports, the weaker its currency gets.
What are Fed officials signaling?
The Fed completed its first rate hike in three years last month. Governor Christopher Waller said Thursday that further hikes are "very likely necessary."
St. Louis Fed President Alberto Musalem went further: rates should keep rising over the next six to nine months — but he stopped short of backing a move at this month's meeting.
This means → the direction is set; only the pace is flexible. The core bull case for the dollar — the U.S. has more room to hike than other major economies — remains intact for now.
How is speculative money positioned?
CFTC data show speculators added to dollar longs for a second straight week through September 29.
Spectra Markets president Brent Donnelly: "I'm bullish on the dollar at least near-term. Money is still flowing into the U.S.; the AI capex story is strong, pushing up inflation and nominal growth."
In plain terms = smart money is not just hedging — they are betting that the U.S. economy, fueled by AI investment, will keep rates elevated.
Where could the rally stall?
Risk one: AI revenue misses. OpenAI reported revenue below recent expectations Thursday; tech stocks fell, and the dollar slipped 0.1% on Friday.
Risk two: Midterm-election dynamics. Nomura's Dominic Bunning warned that Trump may seek to de-escalate tensions with Iran before the vote to ease energy prices and boost Republican prospects — and once oil retreats, the dollar's risk premium shrinks.
Risk three: Policy pivot. Polls show Democrats could win at least one chamber. Some strategists are already positioning for tighter AI regulation under a Democratic Congress — a scenario that could trigger a selloff and break the "AI drives nominal growth" narrative.
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