Weekly commentary - October 5, 2026 - U.S. dollar: surprisingly resilient

Oct 12, 2026

Weekly commentary dated October 5, 2026 examines why the U.S. dollar has remained resilient despite shifting Fed expectations and changing market pricing. It argues that fundamentals—especially rate differentials driven by two-year yields, risk sentiment, and term premium—better explain recent dollar gains than a sustained “dollar demise” narrative. It assesses jobs data, FOMC minutes, and capital flows, concluding limited room for a prolonged dollar bull run while keeping the currency near current levels.

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Weekly commentary

October 5, 2026

U.S. dollar: surprisingly resilient

Fundamentals, Fed repricing, and rate differentials

Capital flows and traditional drivers

Bottom line

CAPITAL AT RISK. INVESTMENTS CAN RISE OR FALL IN VALUE. FOR PUBLIC DISTRIBUTION IN THE U.S., CANADA, LATIN AMERICA, SELECT COUNTRIES IN EUROPE (SEE THE FULL DISCLAIMER), ISRAEL, SOUTH AFRICA, HONG KONG, SINGAPORE AND AUSTRALIA. FOR INSTITUTIONAL, PROFESSIONAL, AND QUALIFIED INVESTORS AND CLIENTS IN OTHER PERMITTED COUNTRIES. Weekly commentary October 5, 2026 U.S. dollar: surprisingly resilient • Fundamentals help explain the dollar’s resilience, supporting our view that it’s too soon to call for its demise. Yet we don’t think this portends a sustained rally. • [A soft U.S. jobs](A soft U.S. jobs) report helped cap gains in U.S. 10-year Treasury yields. Yet the structural forces driving long-term yields remain intact. • We look to September FOMC meeting minutes for details on the central bank’s discussion underscoring its first rate hike in three years. The U.S. dollar has rallied over the past month, taking its gains this year to about 4% against developed-market currencies. Its resilience suggests it may be too soon to write off the dollar’s long-term role. Familiar drivers like rate differentialsand risk sentiment help explain the rebound. Yet the greenback is stronger than the level suggested by our analysis. With markets pricing more Fed tightening than we think will materialize, there is limited scope for a sustained dollar bull run. Swing dollar [U.S. dollar index vs. trade-weighted two-year yield](U.S. dollar index vs. trade-weighted two-year yield) differential, 2022–2026 DXY index 115 110 105 100 95 90 DXY index Weighted 2y yield differential (right) 3.0 2.5 2.0 1.5 1.0 0.5 Yield d iffe rent ia ls (pp) 2022 2023 2024 2025 2026 Source: BlackRock Investment Institute, with data from LSEG Datastream, October 2026. Notes: The orange line shows the U.S. Dollar Index (DXY) . The yellow line shows the trade-weighted average U.S. two-year yield differential versus Germany, Japan, the UK, Canada, Sweden and Switzerland (right axis), using DXY currency weights. Yield differentials are shown in percentage points. The dollar’s journey over the past 18 months has been telling. It fell sharply after President Donald Trump’s “Liberation Day” tariff announcements fueled warnings about dollar debasement, stabilized, then weakened again this summer amid Fed credibility concerns. It has since rebounded as Fed rate expectations swung dramatically – from as many as two cuts this year to one hike already delivered and more tightening priced. The dollar has closely tracked the resulting shift in two-year yield differentials. See the chart. The DXY has now retraced most of its post-April 2 tariff decline. That supports our pushback last year against the dollar debasement narrative. Yet we don’t expect a sustained appreciation cycle. Even with Fed repricing, strong U.S. growth and robust equity inflows, our analysis suggests the dollar is stronger than these and other fundamental driversimply. The bar for further gains is high. Jean Boivin Head – BlackRock Investment Institute Wei Li Global Chief Investment Strategist – BlackRock Roelof Salomons Chief Investment Strategist for the Netherlands and the Nordics – BlackRock Investment Institute Michel Dilmanian Portfolio Strategist – BlackRock Investment Institute BII1026-M-5987502-EXP1027-1/5 CAPITAL AT RISK. INVESTMENTS CAN RISE OR FALL IN VALUE. FOR PUBLIC DISTRIBUTION IN THE U.S., CANADA, LATIN AMERICA, SELECT COUNTRIES IN EUROPE (SEE THE FULL DISCLAIMER), ISRAEL, SOUTH AFRICA, HONG KONG, SINGAPORE AND AUSTRALIA. FOR INSTITUTIONAL, PROFESSIONAL, AND QUALIFIED INVESTORS AND CLIENTS IN OTHER PERMITTED COUNTRIES. Start with the Fed rate path. The dramatic repricing has provided a powerful boost to the dollar and dollar assets this year. Markets have gone from pricing cuts at the start of the year to pricing roughly four more hikes over the next 12 months, ontop of last month’s rate increase. We think that is to

FAQs

What does the commentary say explains the dollar’s resilience?

It attributes resilience mainly to fundamentals such as rate differentials (two-year yield differentials), supported by risk sentiment and term premium, rather than expectations of an imminent dollar collapse.

How do Fed rate expectations affect the currency in the analysis?

The document says dramatic repricing has boosted the dollar and dollar assets, but it argues that markets are pricing more tightening than it expects, limiting scope for a sustained rally.

What role do capital flows play according to the commentary?

It highlights strong U.S. growth, corporate earnings, and AI-related investment driving equity outperformance and attracting global capital into U.S. dollar assets, with the expectation that this support can persist.

Oct 12, 2026

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