Dollar Soars Near 17-Month Peak as Euro Struggles with French Risks

The dollar started the week near a 17-month high as investors reacted to shifting U.S. interest rate expectations and growing concerns over France’s fiscal stability. On October 5, the euro traded at $1.1246, nearing its lowest level since May 2025, after falling for four straight weeks due to rising French government debt and political uncertainty ahead of next year’s elections.

Other major currencies also felt the pressure, with the pound sterling trading at $1.3241 and the Japanese yen at 157.69 per dollar. The dollar index, tracking the currency against six major peers, stood at 101.97. Bond market turmoil further influenced currency movements, as inflation fears pushed global borrowing costs to multi-decade highs. The yield on 10-year U.S. Treasury bonds settled at 5.262%, down from last week’s 24-year peak.

The dollar’s strength was attributed to its appeal as a safe-haven asset amid global bond sell-offs. Matthew Ryan, Head of Market Strategy at Ebury, noted that rising Treasury yields make U.S. assets more attractive, drawing funds into the dollar. Meanwhile, the Swiss franc gained over 1% against the euro, reflecting its safe-haven status.

Expectations for U.S. Federal Reserve rate hikes have supported the dollar, though weaker-than-expected September jobs data dampened those prospects. Traders now see a 78% chance of no rate change in October, up from 36% a week earlier. However, analysts like Mohit Kumar at Jefferies believe market pricing for future hikes may be overly aggressive, predicting only one rate hike each from the Fed and the European Central Bank by March.