Dollar Strengthens on Inflation Expectations and Compressed Yield Curve

The US dollar has strengthened on the back of inflation expectations and a compressed yield curve. The delay in the Iran deal, confirmed by Trump at the UN General Assembly, has kept energy prices high for another seven weeks. This has reinforced the transmission from energy to inflation, keeping the probability of a December Fed hike near 78%.

The resulting front-end rate support has pushed the DXY index to its highest level since July, reaching 100.68. The Treasury curve's compressed shape is also sustaining the dollar's advance, with the 2s10s spread sitting at just 21 basis points. This flat curve signals confidence in the Fed's policy credibility and preserves the dollar's real-rate advantage.

The euro, on the other hand, continues to struggle despite improving geopolitical headlines. EUR/USD remains below 1.15, with markets focused on rate differentials favoring the dollar after the Fed's latest hawkish repricing.