The US dollar is on track for its third consecutive week of gains on Friday, standing at a 17-month high as a bond market rout has driven borrowing costs worldwide to multi-decade highs amid inflationary concerns stemming from rising oil prices. Investors faced significant turmoil on Thursday due to a pronounced global bond sell-off, which propelled yields on benchmark US 10-year Treasuries to 5.344%, marking their highest level since 2002. This movement occurred in anticipation of a US jobs report that may impact the near-term policy outlook. The 10-year yield was last at 5.249% in early trading on Friday, while the remainder of the bond market also exhibited signs of stabilisation. The euro was at $1.1237, remaining near its lowest level since May 2025, influenced by concerns regarding France’s fiscal health. The yen remained stable at 158 per US dollar following the release of data indicating that annual core inflation in Tokyo surged in September at the quickest rate in 10 months.
The dollar index, which measures the US currency against six rivals, was at 102.08, set for a 1% gain this week, marking its third consecutive weekly gain, a streak last observed in May 2025. Charu Chanana noted that investors are facing a challenging combination of persistent inflation, significant government borrowing, and substantial bond supply. “The fact that long-end yields are pushing higher even as expectations for an immediate Fed hike have eased suggests this is increasingly about the term premium and fiscal risk, not just the next Fed decision,” she said.
Data released on Wednesday indicated that US consumer prices increased at a rate lower than anticipated in August, accompanied by downward adjustments to July’s figures. This development prompted traders to temper their expectations regarding a potential rate hike from the Federal Reserve later this month.
Two of the Fed’s top policymakers this week articulated a notably clear rationale for gathering additional data prior to making a decision regarding another interest rate hike. That has sharpened the focus on the US payroll report due later in the day, with data likely to show that job growth slowed in September and the unemployment rate is forecast to have been 4.1% for a third straight month. “With the Fed now myopically focused on inflation and price pressures, a hot wages print could prove particularly influential for US rates, Treasuries and the USD,” said Chris Weston. Brent crude futures have risen above $100 per barrel as traders monitor the impasse in negotiations between the US and Iran regarding the resolution of the conflict in the Middle East. Sterling was at $1.3187, while the Australian dollar was 0.18% softer at $0.6918, with both currencies hovering around their three-month lows. The New Zealand dollar declined by 0.22% to $0.5591, marking its lowest point since November 2025.
“Clearly the market is not pricing for a hawkish Fed,” said Prashant Newnaha. “This is a flight-to-safety move spurred on by developments in Europe. In this scenario expect the dollar index and the yen to strengthen at the same time.” Much of the dollar’s recent strength has been achieved at the expense of the euro, as the increasing political risk in Europe and the energy shock stemming from the seven-month-long conflict in the Middle East have negatively impacted sentiment toward the single currency. The euro has faced challenges against the yen and the Swiss franc, while yields on French debt have risen to a 14-year high amid concerns regarding France’s precarious financial situation. Pepperstone’s Weston said the nature of the dollar move is shifting. “Increasingly, the story is becoming less about US exceptionalism and more about problems elsewhere, particularly in Europe.”
