The US Dollar is at its strongest in around 18 months.
The euro fell to a 17-month low against it on Monday, and the Canadian Dollar to its lowest since April 2025. The pound has held up better and is broadly steady.
Two things are driving it. The US central bank has made clear it hasn’t finished raising interest rates, and oil prices remain high.
Part of the story is also the euro’s own troubles, which we cover in our pound and euro update.
What the Fed is telling us
The Federal Reserve raised its interest rate in September to a range of 3.75% to 4%, its first move after nine months on hold. Late last year it was cutting rates, which shows how quickly its view has changed.
The record of that meeting, published on Wednesday, showed most officials expect another rise before the end of the year. They also judged that the economy can take it, with share prices high and companies able to borrow easily.
Sixteen of the 18 officials expect at least one more rise this year, with two meetings left. Four expect two.
Fed Governor Christopher Waller set out the reasoning in a speech on Thursday.
Three things changed his mind over the course of the year. Oil prices are now expected to stay high through 2027 because of the conflict in the Middle East. Heavy investment in artificial intelligence is pushing up the price of technology goods. New tariffs are also threatened.
He addressed last week’s weak jobs figure directly. In his view the jobs market is stable, and inflation at 3% on the Fed’s preferred measure is too high. For now, inflation is the priority.
Thursday’s figures backed that up, with new unemployment claims slightly lower than expected at 197,000.
He expects further rate rises if the data come in as expected, although they don’t need to come at consecutive meetings.
Markets agree. They see about an 85% chance of a rise by December, and around an 80% chance of two by March.
Oil adds to it
Oil prices jumped mid-week on reports that the US was drawing up options for military strikes on Iran, and after a storm shut around a quarter of oil production in the Gulf of Mexico.
They have eased slightly since, after President Trump ruled out an attack before November’s midterm elections, but Brent crude is still above $100 a barrel.
Higher oil prices tend to help the Dollar, because the US produces its own energy. They hurt the currencies of regions that import theirs, such as the Eurozone and the UK.
EUR/USD: two problems at once
Last week we said most of the euro’s fall against the Dollar was down to a strong Dollar. That’s still true, and the euro now has problems of its own on top.
The first is interest rates. The Fed has a clear majority for another rise, while the European Central Bank is keeping its options open. Higher interest rates make a currency more attractive to hold, so that gap favours the Dollar.
The second is France, where the government’s budget ran into opposition on its first day in parliament and borrowing costs are close to their highest since 2008.
The euro has edged off Monday’s low, helped by French borrowing costs steadying towards the end of the week.
GBP/USD: holding steady
The pound has been broadly steady against the Dollar, which is a respectable result in a week when the Dollar has risen against most currencies.
Markets see around a 90% chance that the Bank of England raises its rate to 4% on 5th November. That means the gap between UK and US rates isn’t widening against the pound in the way it is against the euro.
The risk runs the other way as well. The UK imports its energy, and the Budget on 28th October is the biggest single test for the pound this autumn.
USD/CAD: oil against politics
The US Dollar has risen around 3.5% against the Canadian Dollar since early September, reaching its highest since April 2025 this week.
For the past week, though, the rate has barely moved. Two forces are pulling in opposite directions.
Oil is Canada’s largest export, so higher oil prices support the Canadian Dollar. That helped it hold its ground this week while the euro fell.
Against that, the US Dollar is strong for the reasons above, and Canada has political risks of its own.
A trade dispute with the US is escalating. A separatist party won the most seats in Monday’s election in Quebec and will form a minority government. On 19th October, Alberta votes on whether to begin a process towards independence.
The outlook therefore remains finely balanced. If oil prices rise again, the Canadian Dollar has support. If US interest rates keep rising and political uncertainty in Canada grows, the US Dollar has the upper hand.
What could turn it around
The Dollar’s rise depends on the Fed following through.
A run of softer US inflation figures would weaken the case for further rate rises. The next reading is on 14th October.
A settlement in the Middle East would lower oil prices and take away one of the Dollar’s supports.
Key dates
- Wednesday 14th October: US inflation
- Monday 19th October: Alberta independence vote
- Wednesday 28th October: US interest rate decision and UK Budget
- Tuesday 3rd November: US midterm elections
- Thursday 5th November: Bank of England interest rate decision
- Wednesday 9th December: US interest rate decision
Planning ahead
Nobody can say whether the Dollar has further to rise. It might.
The more useful question is what a further move would cost. Some businesses with Dollar payments due in the coming months may wish to consider whether current levels meet their budget, and whether fixing a rate for part of that requirement would give them useful certainty.
For businesses with Canadian Dollar payments or receipts, 19th October is a date worth knowing.
If you would like to talk through how these moves could affect your business, please speak to the Lamera dealing team.
This article provides general market information and is not a recommendation based on your individual circumstances. Please speak to us before making any decisions.
Frequently asked questions
Why is the Dollar so strong?
The Dollar is being lifted by rising US interest rates, high oil prices and its role as a safe haven while investors worry about French debt. It’s at its strongest in around 18 months.
Why is the euro falling against the Dollar?
The euro is being hit from both sides. The Fed is expected to keep raising interest rates while the ECB is keeping its options open, and worries over French government debt are weighing on the euro itself. The euro fell to a 17-month low against the Dollar this week.
Will the Fed raise interest rates again in 2026?
Most Fed officials expect to. Sixteen of 18 expect at least one more rise this year, and markets see about an 85% chance of one by December. The remaining meetings are on 28th October and 9th December.
Why is the US Dollar rising against the Canadian Dollar?
The US Dollar is being lifted by rising US interest rates and its role as a safe haven. Canada also faces a trade dispute with the US and political uncertainty in Quebec and Alberta.
How do oil prices affect the Canadian Dollar?
Higher oil prices usually support the Canadian Dollar, because oil is Canada’s largest export. That’s why the Canadian Dollar steadied against the US Dollar this week, even as the Dollar rose against most other currencies.