Dollar index falls 0.1% to 102.12 points to remain near 18-month high
The dollar approached an 18-month high on Thursday, despite a slight decline as a sharp sell-off in U.S. Treasury bonds stalled and the euro recovered relatively as concerns about inflation and government debt continue to support the U.S. currency.
The dollar index, which measures the greenback’s performance against a basket of six major currencies, fell 0.1% to 102.12 points, while the euro rose 0.2% to $1.1214.
The dollar remained close to its highest level since April 9, 2025, supported by rising global borrowing costs, inflationary concerns related to oil prices, increasing corporate debt issuances to finance AI investments, and worsening financial pressures in European countries, especially France.
Pressure on the U.S. bond market subsided, with the 10-year Treasury yield falling 5.5 basis points to 5.223 percent, and the 30-year Treasury yield falling 5.6 basis points to 5.605 percent.
U.S. interest
Despite the rise in bond yields during previous sessions, markets are still likely to hold the US interest rate at the Federal Reserve’s upcoming meeting later this October.
According to CME Group’s FedWatch, the odds of a rate hike rose to around 81%, compared to 76% a week ago and 54% a month ago, supported by economic data showing slowing inflation and a weak labor market.
The U.S. Department of Labor announced that initial jobless claims fell to 197,000 for the week ended Oct. 3, the lowest level since the week ended July 18, while the four-week average fell to 198,000.
The data followed the release of the minutes of the Fed’s meeting in September, which showed that most monetary policymakers saw the possibility of raising interest rates again before the end of the year, although markets continued to expect them to stabilize at the next meeting.
French pressure
The euro rose modestly, but remained under pressure after falling in previous sessions to its lowest level since May, weighed down by the sell-off of French government bonds and the widening gap between French government bonds and Germany.
The French 10-year bond yield was close to 4.90%, while the gap between it and German bonds exceeded 140 basis points, as pressure extended to Italian and Greek debt markets.
Concerns about France’s fiscal are growing, with the budget deficit expected to reach 5.4% of GDP this year and public debt approaching 120%, while the government aims to reduce the deficit to 5% in the 2027 budget through proposed spending cuts of €54 billion.
Political uncertainty ahead of the French presidential elections in April and May is adding to investors’ caution about French assets.
In this context, the governor of the Central Bank of France stressed that addressing fiscal imbalances requires domestic budget control, not the intervention of the European Central Bank to reduce borrowing costs.
European inflation
The minutes of the European Central Bank’s meeting last September showed that monetary policymakers saw inflation risks persist when they decided to raise interest rates, without providing clear indications on the future path of borrowing costs.
The performance of the currency and bond markets reflects the continued impact of financial and inflationary concerns on investors’ decisions, even as expectations of a US interest rate hike at the next meeting ease.