Dollar scales three-month peak on yields boost

The US dollar surged to a three-month peak on Thursday, driven by a series of rising US Treasury yields. This increase in yields was partly attributed to worries about ongoing global price pressures resulting from the US-Israeli conflict with Iran. Inflation data from August, which indicated a lower-than-expected rise in US inflation, and revised downward figures for July, contributed to diminishing expectations of a Federal Reserve rate increase in the current month.

However, a sharp rise in euro zone inflation highlighted the continuing threat of higher energy prices affecting the global economy. The euro fell 0.11% to US$1.1317 and sterling slipped 0.1% to US$1.32495 against the dollar. The dollar reached a record high of 101.66 against a basket of currencies, marking its highest level since June 25, reflecting a 2% gain in September.

While the dollar's sensitivity to Federal Reserve rate hike expectations remains high, Ray Attrill, head of FX strategy at National Australia Bank, suggested that the surge in US yields could benefit the currency if it negatively impacts the equity market. Global bonds experienced their largest monthly decline in years in September, resulting in higher yields due to deteriorating government finances, an excess of issuances, and rising inflation.

The dollar's rise against the yen, up 0.54% at 158.29, was due to the yen's strong performance as the G10 currencies, with the market's caution against potential intervention also playing a role.