Dollar Gains Strength Against Major Currencies Amid Rising Treasury Yields

The U.S. dollar strengthened significantly against major currencies in the week ending October 2, driven by a surge in yields on long-dated U.S. Treasuries. Despite softer-than-expected inflation data and a weak job market report, the dollar closed the week on a high note. The Dollar Index, which measures the dollar's strength against six major currencies, rose by nearly 1% during the week.

The week saw a relentless sell-off in the U.S. Treasury bond market, pushing yields higher due to factors like ballooning fiscal debt, corporate debt issuance for AI infrastructure, and concerns about fuel-led inflation. Key economic data releases included a decline in job openings, steady PCE inflation readings, and a drop in the ISM Manufacturing PMI. The non-farm payrolls report also showed much lower-than-expected job additions, while the unemployment rate unexpectedly increased to 4.2%.

Despite dovish comments from the President of the Federal Reserve Bank of New York, which suggested no rush for another rate hike, the bond market sell-off reinforced hawkish perceptions. The Dollar Index climbed from 100.98 on Monday to 102.21 on Thursday, ending the week at 101.93. The dollar gained against the euro, British pound, Australian dollar, Japanese yen, Swedish krona, Canadian dollar, and Swiss franc.

In the week ending October 2, the EUR/USD pair dropped to 1.1254 from 1.1391, marking the dollar's fourth straight weekly gain against the euro. The British pound edged down 0.08% against the dollar, while the Australian dollar plummeted 0.98%. The Japanese yen fell 0.37% against the dollar, with the USD/JPY pair reaching 157.86. Political developments in France and Spain also contributed to the euro's decline, lifting the Dollar Index further.