Dollar hits 17-month high: Greenback headed for three week gaining streak as bond rout drags euro

US dollar seems to be having a good week, climbing to a 17-month high on Friday towards its third straight week of gains. The momentum comes as a global bond rout pushed borrowing costs higher and left the euro facing fresh losses.The dollar index, which measures the US currency against six major rivals, stood at 102.08 and was heading for a 1% rise this week. That would mark its third consecutive weekly gain, a run last seen in May 2025.The latest strength in the dollar came after a steep global bond sell-off on Thursday. Yields on benchmark US 10-year Treasuries surged to 5.344%, their highest level since 2002, before easing to 5.249% in early trading on Friday. The rest of the bond market also steadied.The sell-off pushed borrowing costs across the globe to multi-decade peaks as investors grappled with inflation concerns linked to higher oil prices.Charu Chanana, chief investment strategist at Saxo, said investors were facing a combination of sticky 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 told Reuters.Euro dragged down by France concernsThe euro was trading at $1.1237, close to its lowest level since May 2025, as concerns over France's fiscal health weighed on the single currency.The euro has also struggled against the yen and Swiss franc, while yields on French debt have climbed to a 14-year high amid concerns about France's shaky finances.Much of the dollar's recent strength has come at the expense of the euro, with rising political risk in Europe and the energy shock from the seven-month-long war in the Middle East weighing on sentiment towards the single currency.Pepperstone's Chris Weston said the factors behind the dollar's move were changing."Increasingly, the story is becoming less about US exceptionalism and more about problems elsewhere, particularly in Europe."US jobs data in focusThe sharp move in bond markets comes as investors reassess the Federal Reserve's interest-rate outlook. US consumer prices rose less than expected in August, while July's figure was revised downwards, prompting traders to reduce their bets on a Fed rate hike later this month.Two of the Fed’s top policymakers also made an unusually clear case this week for taking in more data before deciding on another hike.That has put the US payroll report, due later on Friday, firmly in focus. The data is expected to show that job growth slowed in September, while the unemployment rate is forecast to remain 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 US rates, Treasuries and the USD," said Chris Weston, head of research at Pepperstone.Yen steady, other currencies near lowsThe yen was steady at 158 per US dollar after data showed annual core inflation in Tokyo accelerated in September at the fastest pace in 10 months.Brent crude futures moved back above $100 per barrel as traders monitored stalled talks between the US and Iran to end the conflict in the Middle East.Sterling was at $1.3187, while the Australian dollar was 0.18% softer at $0.6918. Both were hovering around their three-month lows. The New Zealand dollar slipped 0.22% to $0.5591, hitting 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."The dollar's move has therefore unfolded alongside mounting pressure on European markets, with the euro bearing much of the impact as concerns over France, political risk and the energy shock weigh on the currency.You use AI every day. Now get your AI Quotient. Take the AIQ test.