The U.S. dollar is strengthening on renewed Middle East tensions that pushed oil prices higher and on expectations of tighter Federal Reserve policy, with the dollar index at 101.7 as of Oct. 1, 2026, on track for a 2% monthly gain, its strongest monthly advance since June. The Federal Reserve raised its benchmark interest rate by 25 basis points to 3.75-4% on Sept. 16, and with the PCE price index up 0.3% in August and annual PCE inflation holding at 3.4%, still well above the Fed's 2% target, markets expect continued hawkish policy in the near term. Brent crude climbed above $100 a barrel after President Donald Trump rejected an Iranian proposal aimed at resolving the conflict and reopening the Strait of Hormuz, while WTI crude is around $92 a barrel as of Oct. 1, 2026, and flows through the Strait of Hormuz were expected to reach 7.4 million barrels per day this month, per Reuters. Against this backdrop, several ETFs tied to the dollar, energy, Treasury yields and Japan's currency could remain in focus, including the Invesco DB US Dollar Index Bullish Fund UUP, with $430.30 million in assets under management and a 0.70% expense ratio, and the WisdomTree Bloomberg U.S. Dollar Bullish Fund USDU, with $278.20 million in assets and a 0.50% expense ratio. Energy funds drawing attention include the VanEck Oil Services ETF OIH, with $1.90 billion in assets and a 0.35% expense ratio, and the Energy Select Sector SPDR Fund XLE, with nearly $40 billion in assets and a 0.08% expense ratio.
Fed raised the benchmark rate 25bp to 3.75-4% and sticky 3.4% PCE inflation points to continued hawkish policy, lifting the effective funds rate.
Hawkish Fed stance and above-target inflation keep upward pressure on Treasury yields, with the 10Y yield rising.
