Dollar Hits 17-Month High as Global Bond Rout Drags Euro Down

The US dollar has reached its highest level in 17 months. Driven by a global bond market sell-off that has sent borrowing costs soaring. This marks the third consecutive weekly increase for the dollar, as investors seek safer havens.

The euro is facing renewed pressure. Meanwhile, the dollar index, which tracks the US currency against six key peers, has surged to 102.08, poised for a 1% weekly gain.

Charu Chanana, chief investment strategist at Saxo, noted that investors are facing a combination of sticky inflation, heavy government borrowing and large 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 observed.

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The euro was trading at $1.1237, close to its lowest level since May 2025, as concerns over France's fiscal health weighed on the single currency. Yields on French debt have climbed to a 14-year high amid concerns about France's shaky finances. The New Zealand dollar slipped 0.22% to $0.5591.

Hitting its lowest level since November 2025, as investors also priced in a hawkish Fed. "Clearly the market is not pricing for a hawkish Fed," said Prashant Newnaha, senior rates strategist at TD Securities.

A sudden shift in bond markets is unfolding as investors reevaluate the Federal Reserve's stance on interest rates. The latest data, released in August, revealed a slowdown in US consumer prices, a marked departure from expectations. This unexpected turn has led traders to significantly reduce their bets on a potential Fed rate hike in the coming weeks.

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Meanwhile, September's job growth is anticipated to be sluggish, with the unemployment rate projected to remain stable at 4.1% for a third consecutive month.

Brent crude futures moved back above $100 per barrel as traders monitored stalled talks between the US and Iran to end the conflict in the Middle East. Sterling was at $1.3187, while the Australian dollar was 0.18% softer at $0.6918.

The US dollar's surge has also led to a climb in US Treasuries. With yields on benchmark 10-year Treasuries surging to 5.344%. Their highest level since 2002, before easing to 5.249% in early trading on Friday.