Dollar Surges Past Summer Highs Amid Geopolitical Tensions

The US dollar has returned to its summer highs near 101.0 on the dollar index, driven by rising Treasury yields and oil prices. The greenback's rally is likely due in part to the triggering of stop-loss orders in Asia.

Rival currencies are facing their own challenges, with vulnerabilities preventing them from strengthening. For example, the yield spread between French and German bonds continues to widen, indicating political risk in Europe.

France's public debt is approaching 120 per cent, which is problematic not only because of the cost of servicing it but also because the economy's responsiveness to stimulus measures drops sharply when debt levels are this high. The tax burden in France is already the highest in the G7 at 43% of GDP.

The USDJPY has resumed its rise despite Scott Bessent's statements that he had discussed with Satsuki Katayama the need to strengthen the yen. Investors argue that raising interest rates every three months no longer reflects reality, given the Fed's expected four hikes over the next 12 months.