Dollar firm near 17-month high as French fiscal woes weigh on euro
The dollar held firm near a 17-month high on Monday as traders weighed receding odds of a Federal Reserve rate rise this month, while fiscal worries in France kept the euro on the back foot. The euro traded at $1.1246, near its lowest level since May 2025, after four consecutive weekly declines that the source links to France's debt levels and concern about political gridlock ahead of next year's election. Sterling fetched $1.3241, the yen bought 157.69 per dollar in early Asian hours, and the dollar index stood at 101.97.
Markets were still absorbing last week's bond rout, which drove global borrowing costs to multi-decade highs and pummelled French debt as investors fretted over inflation risks from soaring oil prices. The yield on the US 10-year Treasury was 5.262%, below the 24-year high touched last week. Matthew Ryan, head of market strategy at Ebury, said the dollar was the main winner in the current environment, citing both the lift to US assets from higher Treasury yields and safe-haven flows into the greenback amid a broad global debt selloff. OCBC strategists said that if rate volatility remains elevated, pressure on carry trades, cyclical currencies and the euro is likely to persist, while traditional havens such as the Swiss franc and the US dollar should remain supported.
Much of the dollar's recent strength had come from traders pricing in Fed rate rises, but those expectations eased after Friday's data showed US job growth slowed more than expected in September. Mansoor Mohi-uddin, chief macro strategist at Bank of Singapore, said the figures showed the labour market is not overheating despite inflation staying above the Fed's 2% target since the pandemic, and that he expects rates to be left unchanged this month.
Traders were pricing a 78% chance that the US central bank holds rates steady in October, up from 36% a week earlier, according to the CME FedWatch tool, while still expecting a rise in December and two more in the first half of 2027. Jefferies strategist Mohit Kumar said the firm's base case is for one rise each from the Fed and the European Central Bank, arguing that by March either oil prices would be lower or, if they stay elevated, growth would be slower — and that in neither scenario does he see central banks delivering the rises currently priced in.
The Swiss franc changed hands at 0.8286 per dollar and 0.9312 per euro after rising more than 1% last week. The Australian dollar held steady at $0.6956, while the New Zealand dollar eased 0.1% to $0.5610.
