Dollar Soars to 1.5-Year High Amid Euro Weakness and Rising Yields

The dollar index (DXY00) surged to a 1.5-year high on Monday, closing with a 0.23% gain. The rally was driven by increased safe-haven demand as political unrest in France and Spain weakened the euro. Higher Treasury note yields also played a role, with the 10-year yield reaching a 24-year peak of 5.35%, which strengthened the dollar's interest rate differentials.

The dollar extended its gains after the prices paid sub-index of the September ISM services index climbed to a four-year high, signaling a hawkish stance for Federal Reserve policy. This hawkish outlook typically supports a stronger dollar.

However, the dollar's upward momentum was somewhat limited by a more than 1% drop in WTI crude oil prices. This decline eased inflation expectations, reducing the likelihood of aggressive Fed policy tightening, which would have otherwise bolstered the dollar.