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The US dollar climbed to its highest level in more than three months on Thursday as rising Treasury yields supported the greenback, with investors weighing persistent global inflation risks linked to the US-Israeli war on Iran.
The dollar index reached 101.66, its strongest level since June 25, extending a roughly 2% gain in September. The advance came despite softer US inflation data for August and downward revisions to July figures, which reduced expectations that the Federal Reserve will raise interest rates this month.
Long-term Treasury yields remained elevated after global bonds suffered their largest monthly decline in years during September. Concerns over government finances, heavy debt issuance and inflation have pressured bond prices and pushed yields higher.
Ray Attrill, head of FX strategy at National Australia Bank, said the dollar currently appears more sensitive to movements in 10-year Treasury yields than to expectations surrounding the Fed's next rate increase. Continued yield gains could therefore provide further support for the US currency.
The euro slipped 0.11% to $1.1317 against the dollar after losing nearly 2.5% in September, its steepest monthly decline since July 2025. Euro zone inflation has accelerated, highlighting concerns that elevated energy costs could keep price pressures persistent. Sterling fell 0.1% to $1.32495 after declining 2.1% in September.
The dollar also strengthened 0.54% against the Japanese yen to 158.29. However, the yen was the strongest G10 currency during September, gaining 1.4% against the dollar as traders remained cautious about potential Japanese intervention.
A summary of opinions from the Bank of Japan's September meeting showed some policymakers supported accelerating interest rate increases or moving rates closer to the central bank's goal.
Elsewhere, the Australian dollar fell to a two-month low of $0.6940 after domestic inflation came in slightly below forecasts, reducing expectations for another near-term Reserve Bank of Australia rate hike. The New Zealand dollar dropped to $0.5618, its weakest level since November 2025.
Currency markets are likely to remain sensitive to Treasury yields, global inflation trends, energy prices and shifting expectations for central bank monetary policy.
