Dollar Surges as Yields Hit Multi-Decade Highs Ahead of NFP Report

The US dollar surged ahead of the highly anticipated September Non-Farm Payroll (NFP) report, driven by rising Treasury yields and a decline in expectations for an October Federal Reserve (Fed) rate hike.

Treasury yields reached multi-decade highs, with the 10-year yield hitting 5.344%, its highest since 2002, lifting the dollar against most major peers.

Despite the rising yields and dollar strength, expectations for an October Fed hike remain low at around 25%. New York Fed President John Williams suggested that another hike may be appropriate 'later this year', while Vice Chair Philip Jefferson noted that reaching a judgment about future policy adjustments 'may take more time'. As a result, investors have pushed back their expectations for the next hike to December and reduced the total rate hikes expected by the end of 2027 to 80 basis points.

The upcoming NFP report may attract special attention, with expectations for a slowdown to 89k from a strong 162k in August. A strong report could add fuel to the dollar's engines, even if it doesn't significantly boost the probability of an October hike.