NEW YORK: The U.S. dollar headed for its third consecutive weekly gain on Friday, hovering at a 17-month high as a global bond market rout pushed borrowing costs to multi-decade peaks amid inflationary fears driven by higher oil prices.
Investors were reeling from a steep global bond sell-off Thursday that sent yields on benchmark U.S. 10-year Treasuries to 5.344%, their highest level since 2002, ahead of a U.S. jobs report that could shape the near-term policy outlook.
The 10-year yield stood at 5.249% in early trading Friday as the broader bond market steadied.
The euro traded at $1.1237, near its lowest level since May 2025, weighed down by concerns over France's fiscal health. The yen held steady at 158 per dollar after data showed Tokyo's annual core inflation accelerated in September at the fastest pace in 10 months.
The dollar index, which measures the U.S. currency against six major rivals, stood at 102.08 and was on track for a 1% weekly gain, its third straight weekly advance, a streak last seen in May 2025.
Charu Chanana, chief investment strategist at Saxo, said investors are confronting an uncomfortable mix of stubborn inflation, heavy government borrowing and large bond supply.
"The fact that long-end yields are pushing higher even as expectations for an immediate Fed hike have eased suggests this is increasingly about the term premium and fiscal risk, not just the next Fed decision," she said.
Data Wednesday showed U.S. consumer prices rose less than expected in August, with downward revisions to July's figure, leading traders to reduce bets on a Federal Reserve rate hike later this month.
Two of the Fed's top policymakers this week made an unusually clear case for gathering more data before deciding on another hike.
That has sharpened attention on the U.S. payroll report due later Friday, with data likely to show job growth slowed in September and the unemployment rate forecast to hold at 4.1% for a third straight month.
"With the Fed now myopically focused on inflation and price pressures, a hot wages print could prove particularly influential for U.S. rates, Treasuries and the USD," said Chris Weston, head of research at Pepperstone.
Brent crude futures climbed back above $100 per barrel as traders monitored stalled talks between the U.S. and Iran aimed at ending the conflict in the Middle East.
Sterling traded at $1.3187, while the Australian dollar slipped 0.18% to $0.6918, both hovering near three-month lows. The New Zealand dollar fell 0.22% to $0.5591, its lowest level since November 2025.
"Clearly the market is not pricing for a hawkish Fed," said Prashant Newnaha, senior rates strategist at TD Securities. "This is a flight-to-safety move spurred on by developments in Europe. In this scenario expect the dollar index and the yen to strengthen at the same time."
Much of the dollar's recent strength has come at the euro's expense, as rising political risk in Europe and the energy shock from the seven-month war in the Middle East have dented sentiment on the single currency.
The euro has also struggled against the yen and the Swiss franc, while yields on French debt have surged to a 14-year high amid worries over France's shaky finances.
Pepperstone's Weston said the nature of the dollar's move is shifting.
"Increasingly, the story is becoming less about U.S. exceptionalism and more about problems elsewhere, particularly in Europe," he said.
