Dollar index at an 18-month high: how the majors move together and where they diverge
Understand the dispersion among the majors through two lenses: the shared driver and each currency's own variables.
One driver, very different declines
On 14 October the dollar index closed at 102.53, up 0.33% on the day and at an 18-month high. On the same session EUR/USD settled at 1.1151, GBP/USD at 1.3194, USD/JPY at 158.29, AUD/USD at 0.6970 and USD/CAD at 1.4235. The dollar strengthened against the majors across the board, but by noticeably different amounts.
Understanding that dispersion is worth more than memorising any single level.
The shared driver: rate expectations
The core driver of this dollar move is a repricing of rate expectations. US September CPI rose 3.7% year on year and 0.6% month on month, both above expectations, pushing the cumulative probability of one more hike before year-end above 85%. Front-end Treasury yields rose, directly widening the dollar's rate advantage.
Divergence one: who is tightening in step
Euro area September inflation rose to 3.8% on the initial estimate, and the ECB had already raised its deposit rate to 2.50% in September. When the counterparty is also tightening, the pace at which the differential widens is restrained, which is why the euro's decline has been comparatively limited. When the counterparty is easing or on hold, the pair's direction is far cleaner.
Divergence two: who has an independent variable
The yen is pulled by two variables at once: dollar-side rate expectations and the Bank of Japan's own hiking pace. The BoJ raised its policy rate to 1.25% on 18 September, and the 30 October meeting is expected to hold while preserving room for December. That combination of simultaneous tightening on both sides keeps USD/JPY oscillating between 157.60 and 159.00 rather than following the dollar index one-for-one.
Divergence three: who is tied to commodities
Commodities carry more weight in the pricing of the Australian and Canadian dollars. Brent crude above 106 dollars, roughly 70% higher year on year, provides some support to the commodity currencies. But OPEC has cut its 2026 global oil demand growth forecast from 1.4 million barrels per day at the start of the year to 400,000, and a weaker demand outlook limits how long that support can last.
Turning dispersion into a watchlist
When the dollar index changes trend, build a watchlist around three questions: is the counterparty central bank tightening in step, does the currency have an independent variable, and is the economy highly dependent on commodities? The answers determine which pair deserves attention in any given dollar move.