US, Oct 02 : The US dollar was on track for a third consecutive week of gains on Friday, reaching a 17-month high as a sharp sell off in global bonds drove borrowing costs higher and heightened concerns over persistent inflation fueled by elevated oil prices.
Markets were shaken on Thursday after a broad decline in government bonds pushed the yield on the benchmark US 10-year Treasury to 5.344 per cent, its highest level since 2002. The yield later eased to 5.249 per cent in early Friday trading as bond markets showed signs of stabilising.
The euro remained under pressure at $1.1237, close to its weakest level since May 2025. Concerns over France’s fiscal position have weighed heavily on the common currency, while rising European borrowing costs have added to investor uncertainty.
The dollar index, which tracks the US currency against six major counterparts, stood at 102.08 and was heading for a weekly advance of about 1 per cent. If sustained, it would mark the greenback’s third straight weekly rise, a sequence last recorded in May 2025.
Charu Chanana, chief investment strategist at Saxo, said markets were dealing with a difficult combination of persistent inflation, substantial government borrowing and a large supply of bonds.
She noted that the rise in longer-term yields, despite reduced expectations of an immediate Federal Reserve rate increase, indicated that investors were increasingly concerned about term premiums and fiscal risks rather than simply focusing on the central bank’s next policy decision.
Recent US inflation data offered some relief, with consumer prices increasing less than anticipated in August and July’s figure revised downward. The figures prompted traders to reduce expectations of another Federal Reserve rate hike later this month.
Two senior Federal Reserve policymakers also argued this week for waiting for additional economic data before determining the next policy move.
Against this backdrop, investors were closely watching the US employment report scheduled for later Friday. Economists expected hiring to have moderated in September, while the unemployment rate was forecast to remain at 4.1 per cent for a third consecutive month.
Chris Weston, head of research at Pepperstone, said a stronger-than-expected wage reading could have a significant impact on expectations for US interest rates, Treasury yields and the dollar, particularly because inflation remains a key focus for the Federal Reserve.
Oil prices were another source of concern. Brent crude futures moved back above $100 a barrel as markets monitored stalled negotiations between the United States and Iran aimed at ending the conflict in the Middle East.
Other major currencies also remained weak. Sterling traded at $1.3187, while the Australian dollar fell 0.18 per cent to $0.6918, with both currencies near three-month lows. The New Zealand dollar declined 0.22 per cent to $0.5591, touching its weakest level since November 2025.
Prashant Newnaha, senior rates strategist at TD Securities, said the latest moves did not indicate that markets were anticipating a particularly hawkish Federal Reserve. Instead, he described the dollar’s gains as part of a broader flight to safety linked to developments in Europe.
The greenback’s recent advance has been particularly pronounced against the euro as political uncertainty in Europe and the energy shock associated with the prolonged Middle East conflict have affected investor sentiment.
The euro has also weakened against the Japanese yen and Swiss franc. Meanwhile, French government bond yields have climbed to a 14-year high as concerns over the country’s public finances continue to weigh on markets.
Weston said the factors behind the dollar’s appreciation appeared to be changing. Rather than being driven mainly by the relative strength of the US economy, he said the move was increasingly reflecting concerns elsewhere, particularly within Europe.