Last Updated on 23/09/2026
The US Dollar Index (DXY) has finally broken through a level that traders had been watching closely for weeks. After several unsuccessful attempts, DXY moved above the psychologically significant 100 mark last week and remained above that threshold into Tuesday, trading around 100.5–100.7 — its strongest range since late July. The move came after the Federal Reserve’s 16 September decision to lift the federal funds target by 25 basis points to 3.75–4.00%, marking its first rate increase since July 2023. The decision was unanimous, with all 12 voting members supporting the move under Chair Kevin Warsh.
While markets had already anticipated the rate hike, the Fed’s accompanying message was less fully priced in. The latest statement removed previous wording that partly attributed persistent inflation to “supply shocks.” Meanwhile, the updated Summary of Economic Projections showed that 16 of 18 officials expected at least one additional 25bp increase before the end of the year, while the median forecast placed the policy rate at 4.00–4.25%. Inflation remained elevated, with August CPI at 3.4%, while the Fed raised its 2026 PCE inflation projection to 3.7%. Growth forecasts were revised modestly higher, while unemployment remained at 4.1%.
In simple terms, the Fed appears increasingly concerned that inflation pressures could prove persistent rather than temporary.
That combination of an actual rate hike and the possibility of another increase has helped keep the dollar above 100 instead of triggering a “sell the news” reaction.
Dollar: How the Bond Market Responded
The conventional reaction to a hawkish Fed would be rising Treasury yields and a stronger US Dollar. However, the actual market response has been more measured. The 10-year Treasury yield was already close to 5% ahead of the meeting. On the decision day, yields did not surge, and some parts of the curve actually moved lower once the expected 25bp hike was confirmed. Since then, the 10-year yield has remained within a relatively narrow 4.93–5.00% range, staying close to recent highs. Meanwhile, the 2-year yield has remained around 4.73–4.77%.
This is not a collapse in long-term yields. Instead, markets appear to be accepting a higher policy-rate path for 2026 without triggering a major bond-market selloff.
The real-rate picture is particularly important for the dollar. With policy rates around 4% and inflation still comfortably above the Fed’s 2% objective, short-term real interest rates are no longer strongly accommodative. For international investors, dollar cash and short-duration Treasuries now offer a yield advantage over assets denominated in euros, yen and sterling.
DXY is ultimately a relative-value measure. As long as the Fed is tightening while most other major central banks remain less aggressive, the dollar retains a carry advantage.
The yield curve provides another source of support. A modestly positive 2s10s spread, combined with the 10-year yield near 5%, suggests investors continue to see risks from persistent inflation even as expectations for future growth moderate. That combination of sticky inflation and expectations for rates to remain elevated can remain supportive for the dollar until financial or economic conditions begin to deteriorate materially.
Banks Under Pressure: XLF’s Weak Session
There are already signs of pressure elsewhere in financial markets. The Financial Select Sector SPDR (XLF) declined roughly 1.8–1.9% from Monday’s close near $55.90, falling toward the mid-$54 area on heavy trading volume. This does not indicate a systemic banking crisis. Instead, it highlights the mixed consequences of another tightening cycle for financial companies.
Higher interest rates can improve banks’ net interest margins when deposit costs remain relatively low. However, deposit expenses have often risen alongside rates during this cycle. At the same time, higher borrowing costs can weaken demand for mortgages, commercial loans and leveraged financing. Banks also face greater duration risk when the 10-year Treasury yield approaches 5%.
Financial stocks are therefore having to reassess the possibility that the October FOMC meeting could produce another 25bp increase if economic data remain strong. The next meeting is scheduled for 27–28 October, with the policy decision due on 28 October.
A stronger dollar and higher short-term yields can tighten financial conditions even before another official rate increase takes place. If weakness in XLF develops into a broader widening in credit spreads, it could eventually limit the dollar’s upside because the Fed would be tightening while financial stress becomes increasingly visible.
That situation has not emerged yet. The recent weakness in banks looks more like a repricing of interest-rate expectations than a funding problem. Nevertheless, it is an important development to monitor alongside DXY’s move above 100.
Technical Outlook: 100 Becomes Support While 101.5 Comes Into Focus
From a technical perspective, the dollar’s recent move is relatively clear. DXY spent the first half of September recovering from the upper-98 area before closing above 100 on 16 September. The index has remained above that level since then.
The 20-day moving average has turned higher through the mid-99s, while the 50-day average is positioned just below 100. Daily RSI has strengthened but does not yet appear excessively stretched. Meanwhile, the 52-week high sits around 101.6–101.8, close to the late-July peak near 101.5 that remains an important reference point for traders.
In the near term, a move back toward the July highs would represent the clearest continuation scenario. A measured move from the September breakout around 100 toward 101.5 would not require an extreme surge in demand for dollars. It could occur if the Fed maintains the possibility of another October increase while European and Japanese central banks refrain from unexpectedly hawkish shifts.
The 101.2–101.8 region could provide stronger resistance. Conversely, a daily close back below 100 would weaken the breakout argument and suggest that the move above the level was temporary. In that case, attention could return to 99.50 and the 50-day moving average.
Volatility has remained relatively contained despite the recent Fed decision. Such periods can sometimes precede a more decisive directional move. Positioning will also become increasingly important toward month-end. If speculative traders are already heavily long USD against the euro and yen, further gains toward 101.5 could become more volatile.
Dollar Strength Versus Commodities
A stronger dollar generally creates a headwind for commodities priced in USD. Gold, crude oil, copper and many agricultural products are traded internationally in dollars. When DXY rises, these commodities become more expensive for buyers using other currencies, potentially reducing demand at the margin and encouraging some financial investors to reduce long positions.
Gold has been caught between these opposing forces. Spot and futures prices have moved within a broad $4,300–$4,400 range, finding support when Treasury yields decline but facing pressure whenever Fed officials signal comfort with another rate increase.
Gold has not collapsed because geopolitical uncertainty and demand for inflation protection continue to provide support. However, if the dollar advances toward 101.5, sustaining further record highs in bullion could become more difficult. Silver is experiencing a similar dynamic, although its price movements are typically more pronounced.
Oil presents a more complicated picture because geopolitical developments can overwhelm the influence of the dollar. Brent has moved around the $100 area, while WTI has traded in the mid-$90s as markets weigh developments surrounding Iran, shipping risks and the stronger greenback.
A stronger DXY does not automatically push crude lower on any particular day. Over a longer period, however, a 2–3% appreciation in the dollar can put downward pressure on oil prices unless supply disruptions provide a counterforce.
Industrial metals illustrate why the dollar-commodity relationship is a guideline rather than an absolute rule. Copper has remained relatively firm, supported by supply concerns and resilient manufacturing activity, even with DXY above 100. When physical-market fundamentals are sufficiently strong, commodities can outperform despite a stronger dollar.
If DXY moves decisively above 101.5 while Chinese demand indicators weaken, copper’s resilience could face a stronger test.
For commodity-linked currencies such as the Australian and Canadian dollars, a stronger USD can create a double challenge through weaker commodity conditions and less attractive relative yields. Sterling can also be affected through broader shifts in risk appetite. These currency movements feed back into DXY because the index is heavily weighted toward the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc.
What Comes Next?
Three factors will determine whether 100 develops into durable support or becomes a ceiling.
The first is Federal Reserve communication. With the blackout period over, policymakers can again comment publicly on the outlook. If Fed officials continue emphasizing the need to return inflation to 2% in a timely manner, markets may continue pricing the possibility of another rate increase, potentially allowing DXY to challenge 101.5.
However, if policymakers begin emphasizing tighter financial conditions or concerns about weakness in the banking sector following XLF’s decline, the dollar’s advance could become more gradual.
The second factor is economic data. Another strong inflation reading or a labor market that remains resilient would reinforce expectations for further tightening. By contrast, a sharp deterioration in employment or convincing evidence that core services inflation is cooling would weaken the case for additional hikes.
The recent dollar rally is primarily driven by expectations surrounding the Fed’s policy path rather than a broad growth scare.
The third factor is developments overseas. Any intervention-related signals from Japan, changes in ECB communication or major geopolitical developments could generate significant two-way volatility. These events would not necessarily eliminate the interest-rate differential supporting the dollar, but they could influence how quickly DXY approaches the next technical resistance.
The Current Market Picture
The dollar’s move above 100 appears to be supported by several factors: an actual Fed rate increase, projections that leave room for another hike, and a Treasury market that has so far tolerated 10-year yields close to 5% without forcing a major policy reversal.
In the near term, DXY could continue to focus on the July highs around 101.5. Weakness in financial stocks alone does not necessarily invalidate this setup as long as broader credit stress remains contained.
The impact on commodities is likely to remain uneven. Gold and several bulk commodities could face additional pressure if the dollar continues to appreciate, while oil will remain heavily influenced by geopolitical developments. Copper could maintain its resilience as long as supply constraints and global manufacturing demand remain supportive.
A move beyond 102 would not necessarily be one-way. If DXY fails near 101.5 and subsequently closes back below 100, that would indicate that markets may be reassessing the sustainability of the latest dollar advance.
For now, however, the greenback has moved beyond the level that repeatedly capped it earlier this year. After reclaiming 100, the market is now watching whether the dollar can extend its momentum toward the next major technical area.
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