Dollar Extends Gains Amid Yield Surge and Weak Economic Data
The U.S. dollar surged against major currencies last week, ending October 2, as yields on long-dated U.S. Treasuries hit multi-decade highs. Despite softer-than-expected PCE inflation readings and disappointing job market data, which dampened expectations of a Federal Reserve rate hike, the dollar closed the week on a strong note. The 6-currency Dollar Index climbed nearly 1 percent, with the dollar rallying against the euro, British pound, Australian dollar, Japanese yen, Swedish krona, Canadian dollar, and Swiss franc.
The week saw a relentless rout in the U.S. Treasury bond market, driven by rising fiscal debt, corporate debt issuance for AI infrastructure, and fuel-led inflation concerns. The Dollar Index rose from a low of 100.98 on Monday to a high of 102.21 on Thursday. Key economic data releases included a decline in job openings to 7.08 million in August and a steady annual PCE Price index at 3.4 percent, defying market expectations. The ISM Manufacturing PMI also unexpectedly declined to 54.5 in September, while non-farm payrolls added just 29,000 in September, far below expectations.
Dovish comments from the President of the Federal Reserve Bank of New York supported a downward repricing of rate hike expectations. However, the sell-off in bond markets reinforced hawkish perceptions. The Dollar Index closed at 101.93, up 0.95 percent for the week. The EUR/USD pair dropped 1.2 percent, marking the dollar's fourth straight weekly gain against the euro. The pound edged down 0.08 percent against the dollar, while the Australian dollar and Japanese yen also plummeted.
Currency market sentiment in favor of the U.S. dollar increased further on Monday, ahead of the release of the FOMC minutes on Wednesday. The Dollar Index touched a high of 102.54 before easing to 102.25, implying overnight gains of 0.31 percent. The euro plummeted to a 17-month low against the greenback amid political uncertainty in the euro area, while the GBP/USD and USD/JPY pairs also saw declines.