Dollar strength and oil at $100: what it means for GBP/USD this week

Daily Market View | 29th Sepetember 2026 | By Michael Rides, FX Analyst at Caxton

Why is the US dollar so strong right now?

The US dollar is strong because US government borrowing costs have climbed to levels last seen in 2007 and markets expect the Federal Reserve to raise rates again. On top of that, Brent crude is near $100 after the US rejected Iran's Strait of Hormuz proposal, which keeps inflation fears high. Sterling opened at 1.3226 against the dollar on 29 September.

What happened?

Two stories are driving currency markets this week: US interest rates and oil. Neither has loosened its grip.

The US 10-year Treasury yield, which is the interest rate the US government pays to borrow for ten years, is sitting near 5.26%. That is the highest level since 2007. The Federal Reserve raised its policy rate by 25 basis points to 3.75–4.00% in mid-September, and its median projection points to one more hike this year. When US bonds pay this much, global money moves towards the dollar.

Meanwhile, Brent crude, the international oil benchmark, is back around $100 a barrel after the US rejected Iran's proposal to reopen the Strait of Hormuz. Roughly a fifth of the world's oil normally passes through that stretch of water. While it stays disrupted, oil prices carry a risk premium, and so does inflation.

At the open on 29 September, GBP/USD (pound against the US dollar) stood at 1.3226, GBP/EUR at 1.1654 and EUR/USD at 1.1357.

Why does it matter for currencies?

Currencies follow interest rates, and right now US rates are rising fastest and look set to stay high the longest.

Higher yields bring in capital. A US Treasury paying over 5% is an attractive, liquid place to park money, and investors have to buy dollars to hold it. That demand holds the dollar up against almost everything else.

Oil adds to this. The US is a net energy exporter, so its economy is better protected from an oil shock than those of Europe or the UK, which import most of their energy. Expensive oil raises inflation in Europe and the UK while weighing on their growth. That is a hard combination for any central bank, and it tends to weaken the currency.

Every major central bank is leaning towards tighter policy. The European Central Bank has raised its deposit rate to 2.5%, and President Christine Lagarde said this week that "measured" hikes remain appropriate. In the UK, markets are pricing roughly an 85% chance that the Bank of England raises rates in November. Analysts at ING think that pricing is too hawkish. If they are right and the Bank does less than markets expect, sterling could lose some of the support it currently has.

What is the market watching next?

Today brings a busy run of data and a crowded list of Fed speakers, and any of them could move the dollar.

• 10:00 BST: Eurozone economic sentiment and consumer confidence. A weak reading would show how much the oil shock is hurting European households and businesses.
• 15:00 BST: US consumer confidence and JOLTS (the Job Openings and Labor Turnover Survey, a measure of labour demand). Strong numbers would support the case for another Fed hike.
• This evening: Fed speakers Michael Barr, Austan Goolsbee, Alberto Musalem and John Williams. Markets will listen closely for signals on how firm the "one more hike" guidance really is.

Beyond this week, the dates that matter are the Bank of England's November decision and the UK Budget on 28 October. UK government borrowing is running above forecast, and gilt yields above 5.4% show that investors want extra compensation for holding UK debt. How the Chancellor fills that gap will matter a great deal for sterling.

What does this mean for businesses and individuals with currency exposure?

When conditions are this headline-driven, the risk comes from volatility as much as from direction. Rates can swing sharply on a single oil headline or data release.

• Paying US suppliers in dollars: a strong dollar makes those invoices more expensive in pounds or euros. If you have known payments coming up, consider how much a further move would cost you.
• Receiving dollar revenue: exporters invoicing in dollars are benefiting at current levels. That can reverse quickly if oil headlines ease or the Fed sounds less hawkish.
• Holding wealth across currencies: individuals with dollar assets have seen those holdings gain value in sterling terms, but big swings in both directions are now more likely.
• Timing large transfers: trying to pick the perfect day is hard in any market, and harder when geopolitics is setting the pace. Many businesses fix part of their exposure with a forward contract, which locks in an exchange rate today for a payment at a future date, and leave the rest open.

Michael's view

My read is that the dollar's strength has solid foundations, but it is also crowded. US yields at 19-year highs and oil near $100 give markets every reason to own dollars. Yet so much of that is already priced in that a softer Fed speaker or a hint of progress on Hormuz could trigger a sharp pullback. For sterling, I think the bigger risk sits closer to home. If ING is right that November hike expectations are overdone, and the Budget fails to reassure the gilt market, the pound has less support than its current level suggests. This is not a market for all-or-nothing bets on direction. It is one for having a plan.

Frequently asked questions

Why is the US dollar strong in September 2026?
US 10-year Treasury yields are near their highest since 2007, and the Fed has signalled another rate hike this year. High oil prices tied to the Iran and Strait of Hormuz standoff are adding to demand for the dollar as a relatively safe, energy-independent currency.

How do oil prices affect the pound?
The UK imports much of its energy, so higher oil prices push up inflation and weigh on growth at the same time. That tends to put pressure on sterling, particularly against the dollar.

Will the Bank of England raise rates in November?
Markets were pricing about an 85% chance of a November hike as of late September, although some analysts, including ING, think that is too hawkish. The decision will depend on inflation, wage data and the outcome of the 28 October Budget.

What is a forward contract?
A forward contract fixes an exchange rate today for a currency payment you will make or receive later. It gives certainty over costs or revenue, although you won't benefit if the rate later moves in your favour.

Why do gilt yields matter for sterling?
Rising gilt yields can reflect investor worries about UK government borrowing. When yields rise because of fiscal risk rather than growth, sterling often weakens along with them.

With the dollar, oil and central banks all moving on headlines, a clear plan is worth more than a forecast. If you have overseas payments or foreign-currency revenue coming up, speak to Caxton's FX dealers about how forward contracts and rate alerts could help you protect your budgets while this volatility lasts.

This article is for information only and does not constitute financial advice. Exchange rates can move quickly and past performance is not a guide to future performance.