Rising Treasury Yields Boost Dollar
Dollar Holds Near Two-Month High as Rising Treasury Yields Support Currency
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Key Points
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The dollar index rose 2% in September to 101.48. The euro lost nearly 2.5% that month—its biggest monthly fall since July 2025—while sterling declined 2.1%.
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Ray Attrill of National Australia Bank said the dollar was then reacting more to movements in 10-year Treasury yields than to expectations about when the Fed might next raise rates. Although shorter-term Treasury yields eased, 10- and 30-year yields reached new highs overnight.
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In a separate market update, the OECD raised its 2025 U.S. growth forecast from 1.8% to 2.0%, while the swaps market priced in a 96% chance of a 25-basis-point Fed rate cut at the December 9–10 meeting.
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The yen fell 0.2% to 157.82 per dollar in early Asian trading, despite gaining nearly 1.5% over September.
The U.S. dollar held near a two-month high as Treasury yields climbed despite softer-than-expected inflation data. CNBC reported that rising long-term bond yields—driven by concerns over government finances and persistent price pressures—kept the dollar supported. The dollar index rose 2% in September to 101.48, while the euro fell nearly 2.5% and the pound dropped 2.1%.
Longer-term Treasury yields reached new highs even as shorter-term rates eased. National Australia Bank noted that the dollar was reacting more to movements in 10-year yields than to Fed rate expectations. Meantime, swaps markets priced in a 96% chance of a 25-basis-point rate cut in December, while the OECD lifted its 2025 U.S. growth forecast to 2.0%.
September Selloff Hammers Euro and Sterling
The euro suffered its worst month since July 2025, losing 2.5% in September against the dollar. IJR cited a global bond selloff pushing borrowing costs higher as a key driver. Sterling declined 2.1% over the same period, while the yen fell 0.2% to 157.82 per dollar in early Asian trading despite gaining 1.5% through September.
Yields Rise on Inflation and Fiscal Worries
The 10-year and 30-year Treasury yields climbed to new highs overnight. Concerns about heavy government bond issuance and sticky price pressures from Middle East conflict weighed on longer-dated debt. CNBC reported that the extended rise in yields pushed borrowing costs higher globally. These moves occurred even as U.S. inflation data came in softer than expected.
Dollar Yields Edge Out Rate-Cut Bets
Traders pivoted focus from near-term Fed policy to long-term bond movements. National Australia Bank said the dollar responded primarily to 10-year Treasury yield swings rather than rate hike odds. The swaps market priced in a 96% chance of a December rate cut. Yet the OECD's upgrade of U.S. growth to 2.0% for 2025 kept the dollar bid as investors bet on stronger American expansion.
Bond Weakness Tests Central Bank Coordination
The global bond rout pressured major currencies and lifted real yields worldwide. Morningstar noted the WSJ Dollar Index had risen three consecutive weeks. Higher U.S. rates made dollar assets more attractive even as euro-area inflation remained elevated. The scale of the selloff raised questions about whether central banks might coordinate responses to stabilize markets.
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