Dollar Rises to 17-Month High Amid Global Bond Rout and Inflation Fears

The US dollar has reached its highest level in 17 months as a global bond market rout pushes borrowing costs to multi-decade peaks. The strong dollar is being driven by fears of inflation, particularly due to higher oil prices, and investors are reeling from a steep sell-off in global bonds on Thursday.

The US dollar index, which measures the currency against six rivals, was at 102.08, set for a 1% gain this week, its third consecutive weekly gain since May 2025. Charu Chanana, chief investment strategist at Saxo, noted that investors are facing an uncomfortable mix of sticky inflation, heavy government borrowing, and large bond supply.

The European single currency, the euro, has also struggled against other major currencies due to rising political risk in Europe and the energy shock from the Middle East conflict. Yields on 10-year benchmark bonds surged to a 14-year high, while the was at $1.1237, its lowest level since May 2025.

Data on Wednesday showed US consumer prices rose less than expected in August, but traders are now looking to the US payroll report due later this month for guidance on future interest rate hikes. Chris Weston, head of research at Pepperstone, warned that a hot wages print could influence US rates and Treasuries.