On one level, this behavior is somewhat surprising. At the start of the year, the expected year-end SOFR rate was 3.05%. At the end of August, the expectations for year-end SOFR were over 4.0%, and the CME Fed Watch tool suggested an 89.5% chance of a hike in policy rate by the December Federal Reserve meeting. One rate increase was confirmed at the Fed’s September meeting, and there is the potential for another before the year-end.

Typically, a higher interest rate environment is positive for the dollar. However, sticky inflation has meant that short-term interest rates are expected to either rise or remain higher for longer in many places, which neutralizes the net impact on the dollar.

Similarly, long term rates in the U.S. have risen, reflecting the increasing supply of debt in both the public and private sectors. In equity markets, indices have reached record highs in 2026, and net foreign inflows into the U.S. market have remained high and sustained. This too should have supported the dollar.

However, when looking at the relative movement of the dollar across other major currencies, the picture is at best mixed.

Three rate rises, along with the potential for additional hikes, have helped the Australian dollar appreciate against the U.S. dollar this year. The New Zealand dollar has also been strong. Against the other major currencies, the U.S. dollar is within 2% of where it started the year. The trend in the past few weeks has been lower.

The U.S. dollar’s performance against the Japanese yen stands out as the most positive for the year, driven largely by yen-specific factors. The fact that the U.S. joined an effort to support the yen (and thus deflate the dollar) is worthy of its own analysis.

It’s worth noting that while the performance against major currencies has been unremarkable, the U.S. dollar has consistently underperformed against emerging market currencies this year.

So what could explain this dynamic? Geopolitical events have been a feature of 2026, and conflicts in the Middle East have had significant implications for energy and commodity markets. This has had a compounding effect on inflation and interest rates around the world. When rates seem to be rising everywhere, the impact on currency values can be unclear.

Expectations are shifting though, and the futures market may offer insight into these movements. 

Data over the summer from the CFTC on speculative activity in CME Group’s FX futures has yielded useful data points. The CFTC provides data on long and short holdings of futures contracts, and combining these figures can generate the net direction held by hedgers and speculators. For speculators (“non-commercial” in the CFTC’s terminology), the combined net long dollar position reached an all-time record at the end of July of $51.4 billion.

In addition, speculative positions in each of the G7 currency futures were individually net long the U.S. dollar. This is a relatively rare occurrence, and the current instance is the longest-running since 2019.

While the trading range for the U.S. dollar in 2026 has been narrow, the positions data suggests that if there's going to be a movement, that movement could well be up.