The dollar remained near a two‑month high on Thursday, supported by an extended rise in U.S. Treasury yields. Market participants point to lingering global price pressures, especially those linked to the ongoing war in the Middle East, as a key driver.
Inflation data and Fed expectations
U.S. inflation for August rose less than analysts had forecast, and July’s figures were revised downward. Those numbers have softened expectations for a Federal Reserve rate hike this month. Nonetheless, analysts caution that the data do not rule out additional hikes later in the year.
Ray Attrill, head of FX strategy at National Australia Bank, said, “There’s a little bit of comfort to be drawn from the (U.S. 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.” He added that the dollar is currently more sensitive to movements in the 10‑year Treasury market than to speculation about the next Fed decision.
Currency movements
Against the dollar, the euro slipped slightly to $1.1330 in early Asian trading, after losing nearly 2.5% in September – its biggest monthly drop since July 2025. The decline reflects Europe’s debt concerns and rising energy costs.
Britain’s pound was flat at $1.3264 after a 2.1% slide last month, also weighed down by a stronger greenback.
The dollar index, which measures the greenback against a basket of major currencies, hovered at 101.48, up 2% in September.
Yen and other Asian currencies
The Japanese yen fell 0.2% to 157.82 per dollar, though it posted a gain of nearly 1.5% over the past month. Kit Juckes, chief FX strategist at Societe Generale, noted, “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.”
Some Bank of Japan policymakers are now urging a faster pace of rate hikes or a move closer to the central bank’s stated “goal,” according to a summary of opinions from its September meeting.
Australian and New Zealand dollars
The Australian dollar slipped to a two‑month low of $0.6940 as investors increased the odds of another near‑term rate hike from the Reserve Bank of Australia following slightly lower‑than‑expected domestic inflation.
The New Zealand dollar lingered near its lowest level since November 2025, last trading at $0.5636.
Bond market backdrop
Global bonds recorded their largest monthly decline in years in September, pushing yields higher. The decline was driven by a toxic mix of deteriorating government finances, a surge of new issuances, and rising inflation.
While the scaling back of expectations for a Fed hike this month prompted a modest retreat in shorter‑dated U.S. Treasury yields, 10‑year and 30‑year yields still reached new highs overnight.
Outlook
Analysts expect the dollar to remain resilient as long as Treasury yields stay elevated and global inflation pressures persist. However, any surprise shift in Fed policy or a de‑escalation of geopolitical tensions could alter the currency’s trajectory.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
