The US dollar held near a two-month high on Thursday as rising US Treasury yields supported the currency amid concerns about persistent global inflation pressures linked to the Middle East conflict.
The dollar index stood at 101.48 after gaining about 2% in September. Higher Treasury yields have provided support even as expectations for an immediate Federal Reserve rate hike eased following softer-than-expected US inflation data.
Euro and Sterling Under Pressure
The euro slipped marginally to $1.1330 in early Asian trading. It lost nearly 2.5% in September, marking its biggest monthly decline since July 2025.
The currency has faced pressure from concerns over Europe’s debt position and energy costs. A rise in euro zone inflation has also highlighted the risks posed by higher energy prices.
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Sterling was little changed at $1.3264 after falling 2.1% in September as the stronger dollar weighed on the British currency.
Treasury Yields Drive Dollar Gains
US inflation rose less than expected in August, while July’s figure was revised lower. The data reduced expectations for another Federal Reserve rate hike this month.
However, longer-term Treasury yields continued to rise. The 10-year and 30-year yields reached new highs overnight, keeping the dollar supported.
The US 10-year Treasury yield later climbed as high as 5.342% on Thursday, its highest level since early 2002, highlighting the scale of the recent bond-market sell-off.
Ray Attrill, head of FX strategy at National Australia Bank, said the dollar was currently responding more closely to movements in 10-year Treasury yields than to expectations about the timing of the next Fed rate move.
Yen Gains Despite Dollar Strength
The yen fell 0.2% to 157.82 per dollar in early trading. Despite the daily decline, it gained nearly 1.5% against the dollar in September.
Kit Juckes, chief FX strategist at Societe Generale, said the yen was the strongest G10 currency in September. He also pointed to market caution over the possibility of Japanese intervention as a factor supporting the currency.
A summary of views from the Bank of Japan’s September meeting showed that some policymakers saw a need to accelerate interest rate increases or move them closer to the central bank’s target sooner.
Australian and New Zealand Dollars Weaken
The Australian dollar fell to a two-month low of $0.6940.
The move came after domestic inflation data reduced expectations for another near-term rate increase from the Reserve Bank of Australia.
The New Zealand dollar also remained near its lowest level since November 2025. It last traded at $0.5636.
Global bond markets suffered a sharp decline in September. Investors have faced a combination of rising inflation, heavy government debt issuance and concerns over public finances. These factors have pushed bond yields higher and supported the dollar.
