Dollar retreats from 18-month high as Treasury yields dip; Fed hike bets ease

On October 15, the dollar retreated from an 18-month high as Treasury yields dropped, signaling a shift in market sentiment towards risk aversion. The greenback initially fell 0.2% to 101.99, regaining some of its losses from a surge following stronger-than-expected inflation data. This move benefited the euro, which rose 0.6% to $1.1223 and positioned itself for its largest gain in nearly two months.

The British pound also strengthened by 0.4% to $1.3250, recovering from a 13-month low. The risk-off environment was further fueled by heightened concerns about AI companies' debt levels and a surge in safe-haven demand for US government bonds. The benchmark 10-year yield hit a three-week low of 5.0933%, while the 30-year yield declined to 5.4462%.

Rodrigo Catril, a senior FX strategist at National Australia Bank, attributed the dollar's decline to falling 30-year yields. Although markets initially priced in a 50% chance of an October Fed rate hike, cautious remarks from several Fed officials dampened these expectations. Khoon Goh, head of Asia research at ANZ, suggested that markets viewed the CPI data as not being strong enough to prompt an October hike.

The upcoming US producer price and retail sales data, as well as Fed officials' statements at the IMF-World Bank annual meetings in Bangkok, will influence market expectations for the central bank's next move. Meanwhile, other currencies showed varying trends, with the Australian dollar slipping 0.3% to $0.6952, the New Zealand dollar gaining 0.6% to $0.5626, and the Swiss franc strengthening by 0.8% to 0.8282.