Dollar Hits 17-Month High as Selloff in Government Bonds Fuels Inflation

The US dollar has reached its highest level in 17 months against the euro due to a selloff in government bonds across the US and Europe. This has pushed Treasury yields to fresh peaks as higher oil prices fuel inflation. The European currency fell below $1.123 for the first time since May 2025 against the dollar, which has been on an upward trend for several months.

According to Brian Daingerfield, head of G10 FX strategy at NatWest Markets, higher yields have been driven by a combination of factors, including concerns about fiscal policy and weakness in French bond markets. This may be spilling over into global markets, as well as continued concern around energy prices and inflation.

The yield on benchmark US 10-year notes hit its highest level since 2002, reaching 5.272%. The euro also sank against the yen and the Swiss franc, and barely held in positive territory against the pound. Yields on French debt surged to a 14-year high due to worries about France's shaky finances.