dollar rises to two‑month high on Fed hike outlook and oil price surge

STRAIT OF HORMUZ, 24 SEPTEMBER 2026 —

The U.S. dollar climbed to its strongest level in nearly two months on Wednesday, driven by expectations that the Federal Reserve will raise rates again at its October meeting and a spike in oil prices following comments from Iran that cast doubt on peace talks. The dollar index rose 0.54 % to 101.09, after reaching 101.1 earlier in the day, its highest since 29 July.

Federal Reserve Governor Michael Barr said the central bank’s recent rate hike was an “important step” to recalibrate short‑term borrowing costs and that further hikes were likely if inflation does not cool. “It’s a rate story right now,” said Elias Haddad, global head of markets strategy at Brown Brothers Harriman in London.

“What’s driving the dollar higher is a follow‑through from the hawkish Fed hike that we got last week, and that’s just given the dollar some renewed momentum.”

The surge in the greenback coincided with S&P Global’s flash U.S. Composite PMI Output Index, which rose to 58.4 this month, its highest since July 2021, up from 56.0 in August. The reading was driven by a surge in new orders, though strong demand strained supply chains and pushed prices higher.

Expectations that the Fed will hike rates by at least 25 basis points at its October meeting rose to about 75 % after the data, up from roughly 53 % before the release, according to LSEG data.

Oil prices jumped after Mohsen Rezaei, secretary of Iran’s Supreme National Security Council, said in an interview with state TV that the Strait of Hormuz would not be reopened and no negotiations would occur unless Iran’s conditions were met. The comment reversed a brief decline in oil prices that had followed hopes of a resolution to the seven‑month‑old Middle East war at the U.N. General Assembly.

The euro fell 0.52 % to $1.1386, on pace for its third straight daily decline. Earlier S&P Global Flash Euro Zone Composite PMI Output Index data showed the region’s economy is showing unexpected signs of health even as conflicts in the Middle East and Ukraine drive up energy costs for firms and households.

Investors are also awaiting a high‑stakes meeting between former U.S. President Donald Trump and Chinese President Xi Jinping, as the two leaders seek stability in a relationship strained by trade, technology and Tehran. The dollar strengthened 0.20 % to 6.712 versus the offshore Chinese yuan.

The Japanese yen weakened 0.6 % against the greenback to 158.32 per dollar as traders remain wary of the threat of intervention after the Bank of Japan’s rate hike to a 31‑year high last week fell short of reassuring investors that more increases may be on the way. Japanese markets are closed for a holiday, and this period of lower liquidity makes it a higher probability for authorities to intervene, according to analysts.

Related: Michael Barr · Strait of Hormuz