The US dollar held near a two-month high on Thursday, October 1, 2025, supported by an extended rise in US Treasury yields driven by global price pressures stemming from the Middle East war, according to market data reported by Reuters.
Federal Reserve Expectations Shift on US Inflation Data
Data showing US inflation rose less than expected in August, alongside downward revisions to July’s reading, reduced market expectations for a Federal Reserve rate hike this month. However, a surge in euro zone inflation highlights the ongoing threat that higher energy prices pose to the global economy. Ray Attrill, head of FX strategy at National Australia Bank, noted that while investors are drawing comfort from the Personal Consumption Expenditures (PCE) numbers, the dollar is currently showing more sensitivity to 10-year Treasuries than to upcoming Fed rate pricing.
Global Bond Yields Surge Amid Deteriorating Government Finances
Global bonds suffered their largest monthly decline in years during September. This downturn pushed yields higher due to a combination of deteriorating government finances, a glut of issuances, and rising inflation. While shorter-dated US Treasury yields retreated slightly following the scaled-back Fed hike expectations, 10-year and 30-year yields hit new highs overnight.
European Currencies Slip Under Debt and Energy Pressures
Against the dollar, the euro traded marginally lower at $1.1330 during the early Asian session. The currency clocked a loss of nearly 2.5% in September—its largest since July 2025—pressured heavily by Europe’s debt and energy worries. Sterling remained flat at $1.3264 after sliding 2.1% the previous month. The dollar index perched near a two-month high at 101.48, following a 2% gain in September.
Asian Currencies React to Central Bank Policies and Intervention Risks
The Japanese yen fell 0.2% to 157.82 per dollar on Thursday, though it managed a gain of nearly 1.5% in September. Kit Juckes, chief FX strategist at Societe Generale, stated that the yen remained the strongest of the G10 currencies through September due to the market’s reluctance to risk currency intervention. Meanwhile, a summary of the Bank of Japan’s September meeting released on Thursday showed some policymakers saw a need to accelerate rate hikes or bring them closer to the central bank’s goal soon.
In the Pacific, the Australian dollar fell to a two-month low of $0.6940 as investors lengthened odds on a Reserve Bank of Australia rate hike following lower-than-forecast domestic inflation. The New Zealand dollar languished near its lowest level since November 2025 at $0.5636.
Market Background and Currency Performance Overview
- US Dollar: Held near a two-month high at 101.48, up 2% in September.
- Euro: Dropped to $1.1330, marking a monthly loss of nearly 2.5%.
- Sterling: Flat at $1.3264 after a 2.1% drop in September.
- Japanese Yen: Traded at 157.82 per dollar, holding a 1.5% gain for September.
- Australian Dollar: Hit a two-month low of $0.6940.
- New Zealand Dollar: Stood near lows at $0.5636.
Common Questions About Recent Currency and Treasury Movements
Why is the US dollar trading near a two-month high?
The dollar is supported by an extended rise in US Treasury yields, driven by global price pressures linked to the Middle East conflict and surging 10- and 30-year yields.
What caused the euro to drop in September 2025?
The euro fell by nearly 2.5% in September—its worst monthly performance since July 2025—due to compounding debt and energy worries across the euro zone.
How are central banks responding to current inflation trends?
While softer US inflation data has pared back expectations for an immediate Federal Reserve rate hike, Bank of Japan policymakers discussed accelerating rate increases, and other central banks like the Reserve Bank of Australia are weighing domestic inflation figures against further tightening.
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