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The dollar is at a 2026 high and overbought, but analysts see no catalyst to end the rally.
The Dollar Index has reached its highest level of 2026 at 102.57, and investment bank analysts see nothing on the horizon to turn it lower.
The index, which measures the dollar against a basket of six major currencies, has risen from below 99 in early September.
The rally is stretched: the Relative Strength Index, a gauge of momentum, reads 69.7 on the daily chart, having spent much of the past fortnight above the 70 threshold that signals overbought conditions.
Above: The Dollar Index at a 2026 high, with the RSI hovering at the overbought threshold (lower panel).
Overbought readings warn a pullback or consolidation is due, but they say nothing about timing, and a strong trend can hold them for weeks.
"Dollar strength continues to climb, supported by firmer oil prices," says ING in its daily FX note.
ING's short-term valuation model shows the dollar overvalued against every G10 currency except the pound, and 1.1% overvalued on an equally weighted basis.
Chris Turner, Global Head of Markets at ING, says that is not enough to call a turn.
"A clear macro or market catalyst is needed for a reversal, and we do not see one," he says.
Without that catalyst, the overbought condition can persist and the index can grind to new highs.
"In March 2026, expectations of a static Fed prevented the dollar from benefiting from geopolitical tensions," says Turner.
That is no longer the case: markets price around 75 basis points of further Federal Reserve tightening, and ING says those expectations may not leave money markets until next spring (more).
Chip Sell-off and $105 Oil Both Favour the Dollar
South Korea's Kospi fell around 6% on Tuesday and Japan's Nikkei more than 2% as semiconductor stocks sold off.
"Worries about the cost of borrowing have sparked a fresh wobble of confidence, with tech companies sliding as investors brace for an era of higher interest rates amid growing competition in the sector," says Susannah Streeter, Chief Investment Strategist at Wealth Club.
Daniella Arcadipane, Senior Currency Specialist at Indigo
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Talk to a specialistBrent crude trades above $105 a barrel after attacks on Saudi Arabia and fresh incidents in the Strait of Hormuz.
Both channels feed the dollar: higher oil lifts US inflation and Fed hike bets, while falling equities draw safe-haven flows.
Wednesday's US inflation data is the next test, with ING seeing upside risks to the 0.2% consensus for core CPI.
Yen and Euro Buckle as Dollar Gains Broaden
USD/JPY stays constructive above its 200-day moving average at 158.55, extending gains alongside rising oil prices despite subdued turnover, and trades at 158.06 today.
"JPY continues to trade on stronger footing alongside USD," says Lee Hardman, Senior Currency Analyst at MUFG, who flags heightened intervention risk and Bank of Japan policy normalisation as the yen's own supports.
EUR/USD broke to a 15-month low of 1.1161 and trades at 1.1178, with ING having lowered its euro forecasts to reflect a more durable fiscal risk premium from France.
Sterling Eyes Trend Lows
The Pound to Dollar rate is at 1.3235, with the sub-1.32 trend lows in view.
Our Week Ahead forecast judged the pair vulnerable to further weakness, with the dollar's pause facing Wednesday's US inflation test and sterling's recoveries likely to stay shallow.
Nothing in Tuesday's price action changes that view: the dollar's momentum is intact, and the catalysts lining up this week point the same way.
Sterling is the only G10 currency ING's model does not show as undervalued against the dollar, so there is no valuation cushion if the dollar extends.
The pound's relative resilience owes to the Bank of England, where a November hike is around 90% priced.
ING says increasing prospects of a Bank of England hike should keep EUR/GBP under pressure for longer, which means further Pound to Euro upside.
Our house view is that the pound stays capped into the 28 October Budget and recovers afterwards.
The 2026 low at 1.3140 is the level to watch if the Dollar Index breaks above 102.85, ING's target for the week.
A hot US inflation print on Wednesday would deliver both.
