September was the USD’s month, and among the majors covered here the scoreboard was almost a clean sweep. The US index rose roughly 2.2% to 101.19, bouncing from a September low near 98.4 and finishing within reach of July's highs around 101.5. The yen was the lone gainer at +1.49%. Everything else fell: sterling -2.10%, euro -2.43%, loonie -2.61%, Aussie -3.04%, franc -3.25%, and the kiwi dead last at -4.79%. It was a near-mirror of August, when every G10 currency rose, the kiwi led at +3.81%, and the dollar index gave back about 3% from its July highs. Reversals in FX are a cruel joke told twice.
The bond market gave its verdict early, with the 30-year pressing toward 5.25% and the 10-year knocking on 5%. September's message was that the hiking cycle isn't over. It is broadening, and the US is leading it.
The Fed hiked rates by 25 basis points on September 16, unanimously raising the target range to 3.75–4.00%, and signaled the job isn't done. Twelve officials see one more hike this year and four see two, and three see none. The US index had bottomed in the first half of the month and did most of its climbing after the meeting. Warsh's Jackson Hole warning that 65 months of elevated inflation sat "squarely with the central bank" was the mission statement, not the rhetoric.
Here is what should unsettle USD bears. The ECB hiked on September 10, the BoJ on September 18 and the RBA on September 29, and the euro still fell 2.43% and the Aussie 3.04%. Hawkishness is relative, and in September the Fed out-hawked everyone. When your central bank hikes and your currency drops 3%, you are no longer trading monetary policy. You are trading the USD.
Each move below is a different route to the same USD bid.
JPY (+1.49%): The lone winner, but don't mistake it for strength. The BoJ's hike to 1.25%, a 31-year high, was supposed to be the validation trade. Instead, the yen fell on the day as the 7-2 vote and vague guidance disappointed. Ueda says the phase has shifted from lifting inflation to "preventing it overshooting," and with USD/JPY near 156.70 the carry trade lives on. Remember late July's coordinated yen buying, publicly blessed by Bessent. Washington tolerates USD strength only until it turns disorderly.
GBP (-2.10%): It fell despite arguably the most hawkish hold on the board. The BoE sits at 3.75% on a 6-3 vote, UK inflation is 3.1% and seen above 4% early next year, and a November hike is about 65% priced. Bailey's insistence that second-round effects remain "limited" is now the most expensive word on Threadneedle Street. If wage data breaks against him, the hawks get their majority and this selloff looks premature.
EUR (-2.43%): This was the cleanest buy-the-rumor, sell-the-fact trade of the month. The ECB's hike to 2.50% was fully priced, and Lagarde offered nothing beyond meeting-by-meeting vigilance, with inflation above target into 2027 and 2026 growth at 0.9%.
CAD (-2.61%): A late fade to 1.3985 as Fed hawkishness pushed the US-Canada 10-year spread to 111bp, the widest in over a year. The BoC held at 2.25% on September 2, and the minutes of its September 16 deliberations showed the Governing Council ready to raise "multiple times" if gasoline bleeds into core inflation. With US trade talks collapsed and fresh tariffs landing, the loonie is caught between a hawkish BoC it can't quite believe and a US economy it can't escape.
AUD (-3.04%): Proof that hiking doesn't matter when the Fed hikes harder. The RBA's move to 4.60%, unanimous, its fourth of 2026 and the highest since 2011, changed nothing. Bullock was blunt that the Middle East "escalated again," oil has "risen significantly," and AI-driven demand is pushing input prices through supply chains. Trimmed mean is stuck at 3.6%, and she left the door open to "increasing the cash rate target further if needed."
CHF (-3.25%): A reminder that safe-haven status is worthless without a rate behind it. The SNB held at zero on September 24, the only major central bank still at the lower bound, while lifting inflation forecasts to 0.7% for 2026 and 0.8% beyond. Schlegel blamed energy (petroleum products +25.2% y/y), but forecasting higher inflation from zero just describes a real-rate bleed. The franc is now purely a funding currency.
NZD (-4.79%): From first to worst. August's leader became September's anchor, and the RBNZ's September 2 hike to 2.75% is ancient history. This is what happens to high-beta currencies when the dollar regime flips: carry unwinds, longs capitulate, and last month's winner becomes this month's funding leg.
Looking Ahead
October is live. After those dots, another hike at the October 27-28 FOMC is near a coin flip. September payrolls (Oct 2) and September CPI (mid-month) are the twin triggers. Around them come the BoC on October 28, the ECB on October 29, the BoJ on October 29-30, the RBA on November 3 (after October 28 Q3 CPI), and the BoE in November with Bailey's credibility on the line.
On the chart, the US dollar index is now testing the July highs near 101.5. A clean break above would confirm the trend, while a failure there keeps the four-month range intact. Base case: higher for longer everywhere, and longest in the US. The risk is the one September exposed. Everyone hikes, the dollar wins anyway, until something breaks.
What to Watch
Oct 2, US September payrolls. After August's 162k print, a soft number is the dollar's biggest near-term threat.
Mid-October, US September CPI. Headline versus core is the whole debate, and another hot gasoline read keeps the FOMC live.
Oct 27-28, FOMC. The dots say more hikes are coming, and the market may still be underpricing them.
DXY 101.5. The July high is the level that separates a breakout from a range.
Hormuz and Iran headlines. An unwind, with energy and the dollar falling together, is the highest-convexity scenario on the board.
November, BoE. Bailey's "limited" second-round effects against 4%-plus inflation.
Nov 3, RBA. Bullock left the door open past 4.60%, and another hike isn't priced.
Conclusion
September showed that in a world of synchronized tightening, the question isn't who hikes but who hikes hardest. The ECB, BoJ and RBA all raised rates, yet only the yen finished the month higher, and even that gain came with caveats. The Fed's message that the job isn't done, combined with a war premium embedded in energy prices and every central bank's reaction function, kept the USD bid firmly in place.
October will test that regime. A soft payrolls print, a cooler CPI, or a de-escalation headline in the Gulf could unwind the trade quickly, since energy and the USD have been moving as one. But if the data stays hot and the US dollar index clears 101.5, the path of least resistance remains higher. Until something breaks, the USD remains the trade.