The dollar has reached its highest level in 17 months, driven by a decline in the euro and rising US bond yields. The US currency has gained for the third consecutive week, driven by a surge in US bond yields. The yield on the 10-year US Treasury bond reached 5.344% on Thursday, its highest level since 2002. This increase in yields has pushed borrowing costs globally to their highest levels in several decades.
The surge in US bond yields has been driven by concerns over inflation, fueled by rising oil prices. The US consumer price index rose less than expected in August, but this has not alleviated concerns over inflation. The data has led traders to adjust their expectations for an interest rate hike this month. The dollar has also been supported by a decline in the euro, which has fallen to its lowest level since May 2025.
The euro has been under pressure due to concerns over France's financial situation. The currency has fallen to 1.1237 against the dollar, its lowest level in over a year. The decline in the euro has also been driven by a stronger US dollar, which has risen to 102.08 against a basket of six major currencies. This is the dollar's third consecutive weekly gain, its first since May 2025.
The rise in US bond yields has also been driven by a global sell-off in bonds. The sell-off has been led by concerns over inflation and the prospect of higher interest rates. Sharoo Chanan, a senior investment analyst at Saxo, said that investors are facing a challenging combination of persistent inflation, heavy government borrowing, and a large supply of bonds.
Chanan added that the rise in long-term bond yields, even as expectations for an immediate US interest rate hike decline, suggests that investors are increasingly demanding a premium for holding long-term bonds. This is driven by concerns over financial risks, rather than just the prospect of a Federal Reserve rate hike.
The US dollar has also been supported by a decline in the yen, which has fallen to 158 against the dollar. The yen has been under pressure due to concerns over Japan's economic situation. The country's core inflation rate rose to its highest level in 10 months in September, driven by rising energy costs.
The dollar's rise has been driven by a combination of factors, including a surge in US bond yields, a decline in the euro, and a stronger US economy. The US economy has been resilient, despite concerns over inflation and the prospect of higher interest rates. The dollar's gains have been driven by a flight to safety, as investors seek to protect their assets from the risks of inflation and economic uncertainty.
Key points
- The dollar has reached its highest level in 17 months, driven by a surge in US bond yields and a decline in the euro.
