The dollar remained close to a two-month peak on Thursday, bolstered by a sustained increase in US Treasury yields, which were partly influenced by worries regarding ongoing global price pressures arising from the conflict in the Middle East. Data indicating that US inflation increased less than anticipated in August, coupled with downward adjustments to July’s figures, has led to diminished expectations for a Federal Reserve rate increase this month. However, a surge in euro zone inflation highlights the ongoing threat that elevated energy prices present to the global economy. Against the dollar, the euro was marginally lower at $1.1330 in the early Asian session. It recorded a decline of nearly 2.5% in September, the most significant since July 2025, influenced by concerns surrounding Europe’s debt and energy issues.
Sterling remained unchanged at $1.3264 following a decline of 2.1% last month, similarly impacted by a stronger dollar. The dollar was perched near a two-month high against a basket of currencies and last stood at 101.48, after rising 2% in September. “There’s a little bit of comfort to be drawn from the (US PCE) numbers… I think the market’s been right to moderate somewhat its expectations for a back-to-back Fed hike… but I don’t think it necessarily means there aren’t still more Fed hikes ahead,” said Ray Attrill. The US dollar appears to be exhibiting greater sensitivity, at this juncture, to developments concerning 10-year Treasuries than to the pricing implications of the timing for the next Federal Reserve rate hike.
Global bonds experienced their most significant monthly drop in years during September, resulting in increased yields, driven by a detrimental combination of worsening government finances, an oversupply of issuances, and escalating inflation. The scaling back of expectations for a Fed hike this month prompted a slight retreat in shorter-dated US Treasury yields; however, 10- and 30-year yields still reached new highs overnight. Elsewhere, the yen depreciated by 0.2% to 157.82 per dollar, despite having recorded a gain of nearly 1.5% in the previous month. “The yen has been the strongest of the G10 currencies (in September), and the market’s reluctance to be caught out by intervention is clearly having an impact,” said Kit Juckes.
Some policymakers at the Bank of Japan recognised the necessity to expedite the pace of interest rate increases or align them more closely with the central bank’s “goal” in the near future, as indicated by a summary of opinions from its September meeting released on Thursday. The Australian dollar declined to a two-month low of $0.6940 on Thursday, as investors adjusted their expectations regarding the likelihood of another near-term rate hike from the Reserve Bank of Australia, following domestic inflation figures that were slightly below forecasts. The New Zealand dollar remained close to its lowest level since November 2025, currently positioned at $0.5636.
