Dollar Rally Extends to Fourth Week as Oil Prices Surge

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, gaining nearly 3% over the period and marking its longest winning streak since early 2025. Brent crude oil prices jumped Thursday amid fresh attacks from Iran that threatened energy flows in the Middle East, pushing investors toward the dollar as a safe-haven 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. She added that sustained dollar strength could continue until oil prices decline.

Further supporting the greenback is the US economy's perceived ability to withstand additional interest-rate increases better than other major economies. Fiscal concerns in France and elevated energy prices have pressured the euro, which touched its 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 interest rates for the first time in three years, while central bank officials continued signaling that further action may be needed to combat inflation. On Thursday, Fed Governor Christopher Waller said additional increases would likely be necessary, although policymakers have some flexibility over the timing. Similarly, Federal Reserve Bank of St. Louis President Alberto Musalem said rates should rise over the next six to nine months but stopped short of endorsing a move at this month's policy meeting.

However, the dollar's rally could face challenges from concerns about artificial intelligence spending and the US midterm elections in November. The greenback pared some recent gains on Friday, with the Bloomberg Dollar Spot Index falling 0.1%.

So far, the dollar has benefited from the AI boom and the subsequent record-setting rally in US stocks, which have attracted foreign investment. On Thursday, stocks sold off after OpenAI reported revenue below recent estimates.

Investors are also monitoring the US midterm elections, which will determine the composition of Congress for the final two years of President Donald Trump's term. Polls suggest Democrats could win control of at least one chamber, giving them greater influence over legislation. Some Wall Street strategists expect Democrats to push for tighter AI regulation, a development that 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. He also noted the possibility that Trump could seek to de-escalate tensions with Iran before the election, potentially easing energy prices and improving Republicans' electoral prospects.

Trump said Thursday that the US would not attack Iran ahead of the November elections. Earlier in the month, he had said an escalation of military strikes against Iran was “possible” following the elections.

For now, speculative traders have continued increasing their bullish positioning on the dollar. Commodity Futures Trading Commission data showed that traders became more positive on the currency for a second consecutive week in the period through September 29.

“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.

Read more: Wealth Orbit Centre

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