The US Dollar Index has finally done what traders had been circling on the chart for weeks. After several failed attempts, DXY pushed through the psychologically important 100 handle last week and has held above it into Tuesday’s session, trading around 100.5–100.7 — its firmest stretch since late July. That break did not happen in a vacuum. It followed the Federal Reserve’s 16 September decision to raise the federal funds target by 25 basis points to 3.75–4.00 per cent, the first increase since July 2023 and a unanimous 12–0 vote under Chair Kevin Warsh.
Markets had largely priced the hike itself. What they had not fully priced was the tone that came with it. The statement dropped earlier language that had blamed elevated inflation partly on “supply shocks.” The new Summary of Economic Projections showed 16 of 18 participants expecting at least one further 25bp move by year-end, with the median policy rate pointing to a 4.00–4.25 per cent range. Inflation was still described as elevated; August CPI was running at 3.4 per cent, and the Committee marked 2026 PCE inflation up to 3.7 per cent. Growth was revised slightly higher, and unemployment held at 4.1 per cent. In plain English: the Fed is no longer treating sticky prices as a passing inconvenience.
That combination — a delivered hike plus a live threat of another — is why the dollar is sitting above 100 rather than fading the news.
Dollar – How bonds actually reacted
The textbook response to a hawkish Fed is higher yields and a stronger dollar. The real tape was more nuanced. The 10-year Treasury yield was already hugging 5 per cent into the meeting. On decision day it did not explode higher; parts of the curve even eased as the 25bp step was confirmed rather than sprung as a surprise. Since then the 10-year has settled back in a tight 4.93–5.00 per cent band, still close to its recent highs, while the 2-year has held around 4.73–4.77 per cent. That is not a collapse in long rates. The market has accepted a higher terminal rate for 2026 without yet demanding a full-blown bond tantrum.
The important point for the dollar is the real rate story. With policy at 4 per cent and inflation still well above 2 per cent, real short rates are no longer deeply stimulative. For foreign capital, dollar cash and short Treasuries now pay a premium that euro, yen and sterling assets struggle to match. DXY is a relative-value index, not a morality play. As long as the Fed is hiking while most other G10 central banks are not, the dollar has a carry bid. A second, quieter support is the curve itself. A 2s10s spread that is only modestly positive, with the long end pinned near 5 per cent, tells you investors still worry about inflation persistence even as they price slower growth later. That mix — sticky inflation plus “higher for longer” — is historically dollar-friendly until something breaks.
Banks feel the pinch: XLF’s down day
Something is already rubbing. The Financial Select Sector SPDR (XLF) has had a clear down session, falling around 1.8–1.9 per cent from Monday’s $55.90 close toward the mid-$54s on heavy volume. That is not a collapse of the US banking system. It is the market reminding itself that a renewed hiking cycle is a mixed blessing for financials.
Net interest margins can widen when policy rates rise — if deposit costs lag. In this cycle, they often have not. Loan demand slows when mortgages, commercial credit and leveraged finance all reprice higher. Mark-to-market books feel duration risk when the 10-year sits near 5 per cent. Regional and money-centre names inside XLF have spent the week digesting the idea that October’s FOMC (27–28 September is the next gathering; the decision is 28 October) could deliver another 25bp if the data stay hot. There is a feedback loop worth watching. A stronger dollar and higher front-end rates tighten financial conditions even before the next official hike. If XLF’s slide deepens into a broader credit-spread widening, that can eventually cap the dollar — because the Fed would then be hiking into visible stress. We are not there yet. Today’s bank weakness looks more like a rate-repricing day than a funding scare. Still, it is the first real crack in the post-FOMC risk mosaic, and it belongs on the same page as DXY 100.
The technical map: 100 is a floor for now, 101.5 is the magnet
From a chart perspective, the story is straightforward.DXY spent the first half of September rebuilding from the high 98s. It closed above 100 on 16 September and has not given the level back. The 20-day average has turned up through the mid-99s; the 50-day sits just under 100. RSI on daily measures is firm but not wildly stretched. The 52-week high is clustered around 101.6–101.8, which lines up with the late-July peak the market still talks about as “101.5.”
In the short term, a retest of that July zone is the cleanest bullish path. A measured move from the mid-September break of 100 toward 101.5 does not require a panic bid in the dollar; it only requires the Fed to keep the door open for October and for European and Japanese policy not to surprise hawkishly. Resistance will thicken into 101.2–101.8. A daily close back under 100 would argue that last week’s break was a spike, not a regime change, and would put 99.50 and then the 50-day average back in play. Volatility has been modest for a post-hike week. That often precedes a directional leg rather than a range. Positioning data will matter into month-end: if speculative accounts are already long dollars against the euro and yen, the path to 101.5 becomes choppier.
The inverse that never quite dies: dollar versus commodities
A stronger dollar is, other things equal, a headwind for dollar-priced commodities. The mechanism is simple. Gold, oil, copper and most agricultural contracts are invoiced in dollars. When DXY rises, the same ounce or barrel costs more in euros, yen and emerging-market currencies, which dampens physical demand at the margin and invites financial longs to fade. Gold has been living that tension all week. Spot and futures have oscillated in a wide $4,300–$4,400 area: supported whenever yields dip, capped whenever Fed speakers sound comfortable with another hike. Bullion is not collapsing, because geopolitical risk and residual inflation hedging still bid the metal. But a dollar that is grinding toward 101.5 makes new highs in gold harder, not easier. Silver follows the same script with more beta.
Oil is messier, because geopolitics can overwhelm the dollar tape. Brent has been swinging around and through $100, with WTI in the mid-90s, as traders parse diplomacy around Iran and shipping risk against a firmer greenback. A rising DXY does not “cause” crude to fall on any given Tuesday. Over weeks, though, a 2–3 per cent dollar rally typically knocks several dollars off the oil complex unless supply is being physically withdrawn. Energy’s soft sector tape versus the broader market is consistent with that drag, even when headlines temporarily lift the barrel. Industrial metals show why “inverse relationship” is a rule of thumb, not a law. Copper has been firm — even printing near-record Comex settlements — on supply-constraint talk and still-resilient global manufacturing, despite DXY above 100. That is the exception that proves the framework: when the physical story is tight enough, copper can ignore a modest dollar rally.
If DXY accelerates through 101.5 while Chinese demand data soften, that exception will be tested quickly. For commodity-linked currencies — the Australian and Canadian dollars, and to a lesser extent sterling via risk appetite — a dollar squeeze is a double hit: weaker terms of trade plus less attractive carry versus USD. That, in turn, feeds back into DXY itself, because the index is heavily weighted to EUR, JPY, GBP, CAD, SEK and CHF.
What has to happen next
Three things will decide whether 100 becomes a platform or a ceiling. First, Fed communication this week and into October. The blackout is over. If Warsh and the voters keep stressing a “timelier” return to 2 per cent inflation, the market will keep a December hike (or an October one) alive, and DXY can probe 101.5. If speakers start stressing financial conditions or bank-channel tightness after XLF’s slide, the dollar’s upside becomes a grind rather than a breakout. Second, the data. Another hot inflation print or a labour market that refuses to cool would validate the SEP dots. A sharp weakening in payrolls or a genuine break lower in core services inflation would do the opposite. The dollar rally of the past ten days is a policy-path trade more than a growth-scare trade. Third, the rest of the world. Intervention chatter around the yen, any shift in ECB language, and the political calendar (including high-profile diplomacy in New York this week) can all produce two-way noise. None of that erases the rate differential. It can, however, cap how fast DXY travels.
The working view
The dollar’s break of 100 is real. It is grounded in a delivered hike, a hawkish forecast package, and a bond market that has accepted yields near 5 per cent on the 10-year without yet forcing the Fed to blink. In the short run, the path of least resistance is a test of the July highs around 101.5. Banks can have a down day — they just did — without invalidating that map, so long as credit stress stays contained. Commodities will feel it unevenly. Gold and many bulk commodities should remain heavy on further dollar strength. Oil will argue with geopolitics. Copper can stay stubborn until growth or China data give the dollar a downside partner. None of this is a one-way bet past 102. A failed retest of 101.5 and a close back under 100 would say the market has decided one hike was enough. Until the Fed or the data deliver that message, though, the greenback is no longer the currency that could not get out of its own way. It is the currency that just reclaimed 100 — and is starting to act like it wants the next round number.
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