Societe Generale links the US Dollar Index (DXY) to changes in interest rate and growth gaps between the US and other economies. It states that US 2-year Treasury yields have risen since the war with Iran, while DXY has moved up only slightly.
The bank says the dollar had been rising before the US Presidential election and kept rising until January 2025. From September 2025 until the war began, 2-year yields stayed at 3.4–3.7% as DXY traded in a 96–101 range.
Over the same period, EUR/USD traded between 1.14 and 1.21. After the war started, the article says 2-year yields rose by over 6%.
It adds that US 2-year yields have been rising faster than yields elsewhere. Based on this, it says DXY has scope to rise further and notes the bank’s end-2026 DXY forecast is above the Bloomberg consensus.
The piece notes that it was produced using an AI tool and reviewed by an editor. It is attributed to the FXStreet Insights Team, which publishes selected market observations and analyst notes.
The gap between surging US interest rates and the dollar’s more modest rise is the main story right now. When we look at the chart, US 2-year Treasury yields have climbed to 6.25% since the conflict began last year, but the Dollar Index is only now testing the 108 level. This suggests the dollar has significant room to catch up with the bond market’s pricing.
This divergence is rooted in persistent inflation, which the Federal Reserve is committed to fighting. April’s core PCE inflation data came in hotter than expected at 4.1%, giving the Fed little reason to signal a pivot from its hawkish stance. As long as US economic data remains firm, the path of least resistance for yields, and therefore the dollar, is up.
For traders, this points toward positioning for further dollar strength in the coming weeks. One straightforward approach is buying call options on dollar-tracking ETFs like UUP, perhaps looking at expirations in August or September 2026 to allow the trend to play out. Long positions in US Dollar Index futures would be a more direct expression of this view.
We saw a similar setup back in 2022, when the Fed began its aggressive hiking cycle to combat post-pandemic inflation. The Dollar Index surged from the mid-90s to over 114 in a matter of months as US rate expectations massively outpaced the rest of the world. The current environment feels like an echo of that period, where playing catch-up can be very profitable.
The dollar’s appeal is magnified when we look at the lagging policies of other central banks. The European Central Bank is only just now signaling an end to its easing cycle, and German 2-year bund yields are still below 3.5%. This growing interest rate differential makes holding dollars much more attractive than holding euros or yen.
