Dollar at 17-month high as global bond rout hits euro

The US dollar has reached a 17-month peak as a global bond sell-off has driven borrowing costs to multi-decade highs amid concerns over higher oil prices. The 10-year US Treasury yield surpassed 5.344% on Thursday, the highest since 2002, ahead of a critical jobs report that could shape the Fed's near-term policy decisions. The euro slipped to $1.1237, its lowest level since May 2025, pressured by doubts about France's fiscal stability.

The Japanese yen remained steady at 158 per US dollar after data revealed a surge in Tokyo's core inflation in September, the fastest pace in 10 months. The dollar index, which gauges the US currency against six peers, climbed to 102.08, marking its third consecutive weekly gain. Saxo Capital Markets' chief investment strategist, Charu Chanana, noted that investors are grappling with persistent inflation, massive government borrowing, and a large bond supply.

The recent bond sell-off sent yields on benchmark US 10-year Treasuries to their highest point since 2002, prompting investors to reassess their expectations for an imminent Federal Reserve rate hike. The US Federal Reserve's policymakers have cautioned for a more cautious approach, emphasizing the need to consider additional data before deciding on another interest rate increase.

The focus has now sharply turned to the US payrolls report expected later in the day, which may reveal a slowdown in job growth and the unemployment rate remaining at 4.1% for the third consecutive month. Chris Weston, head of research at Pepperstone, highlighted that traders are currently prioritizing inflation and price pressures over the Fed's actions, which could significantly impact the dollar, Treasuries, and the US dollar index.

Brent crude futures rose above $100 per barrel as traders monitored the progress of stalled talks between the US and Iran to resolve the conflict in the Middle East. The British pound was at $1.3187, while the Australian dollar dipped slightly to $0.6918, both near their three-month lows. The New Zealand dollar also weakened by 0.22% to $0.5591, reaching its lowest level since November 2025.

Prashant Newnaha, senior rates strategist at TD Securities, commented that the market does not appear to be pricing in a hawkish Fed, suggesting a flight to safety driven by European developments. This shift in sentiment has fueled the dollar's recent gains, which have primarily come at the expense of the euro, as political risks in Europe and the energy crisis stemming from the ongoing Middle Eastern war have undermined confidence in the single currency.