Dollar gets lift from higher yields
“The dollar held near a two-month high on Thursday, supported by an extended rise in US Treasury yields partly driven by concerns over persistent global price pressures stemming from the Middle East …”
Data showing US inflation rose less than expected in August, along with downward revisions to July's reading, reduced expectations for a Federal Reserve rate hike this month. But a surge in euro zone inflation underscores the threat that higher energy prices continue to pose to the global economy.
Against the dollar, the euro was marginally lower at $1.1330 in the early Asian session. It clocked a loss of nearly 2.5% in September, the largest since July 2025, pressured by Europe's debt and energy worries.
Sterling was flat at $1.3264 after having slid 2.1% last month, similarly weighed down by a stronger greenback. The dollar was perched near a two-month high against a basket of currencies and last stood at 101.48, after rising 2% in September.
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"There's a little bit of comfort to be drawn from the (US 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," said Ray Attrill, head of FX strategy at National Australia Bank.
"(But) the US dollar seems to be showing more sensitivity, just at the moment, to what's happening with say, 10-year Treasuries, than it is on pricing for when the next Fed rate hike might come.
"Global bonds suffered their largest monthly decline in years in September, pushing yields higher, due to a toxic mix of deteriorating government finances, a glut of issuances and rising inflation. The scaling back of expectations for a Fed hike this month prompted a slight retreat in shorter-dated US Treasury yields, but 10- and 30-year yields still hit new highs overnight.
Elsewhere, the yen fell 0.2% to 157.82 per dollar, though it posted a gain of nearly 1.5% last month. "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," said Kit Juckes, chief FX strategist at Societe Generale.
Some Bank of Japan policymakers saw the need to accelerate the pace of interest rate hikes or bring them closer to the central bank's "goal" soon, a summary of opinions at its September meeting showed on Thursday.
The Australian dollar fell to a two-month low of $0.6940 on Thursday, as investors lengthened the odds on another near-term rate hike from the Reserve Bank of Australia after domestic inflation came in slightly lower than forecast. The New Zealand dollar languished near its lowest since November 2025 and last stood at $0.5636.
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