Dollar Near 18-Month High as Euro, Yen and Pound Weaken

The U.S. dollar remained near an 18-month high on Thursday as investors assessed hawkish Federal Reserve signals, European fiscal challenges, and expectations for future interest rate decisions.

The U.S. Dollar Index climbed 0.1% to approximately 102.30 after gaining 0.3% on Wednesday, staying close to its strongest level since April 2025. Meanwhile, the euro traded around $1.120, while the British pound declined 0.2% to $1.320.

The euro continued facing pressure from France's deteriorating fiscal outlook. DBS analysts identified French budget concerns and political uncertainty as significant risks for the European currency.

Bank of France Governor Emmanuel Moulin emphasized that fiscal consolidation, rather than European Central Bank intervention, should address rising French borrowing costs.

The dollar's advance was limited by expectations that the Federal Reserve would leave interest rates unchanged at its October 28 meeting.

Minutes from the Fed's September meeting showed policymakers remained concerned about persistent inflation, although officials differed over the justification for the previous 25-basis-point rate increase.

According to CME FedWatch, investors assigned a 19% probability to another quarter-point increase in October. DBS expects a potential pause this month, followed by another rate hike in December.

Meanwhile, New York Federal Reserve data showed one-year inflation expectations reaching 3.9% in September, their highest level in three years.

In Asia, the Japanese yen weakened as USD/JPY rose 0.1% to 158.17, despite Japan reporting an August current-account surplus of ¥4.062 trillion, exceeding forecasts of ¥3.19 trillion.

Uncertainty surrounding the Bank of Japan's next policy move continued weighing on the yen, while investors remained alert to possible currency intervention.

The Indian rupee also struggled against the stronger dollar, with USD/INR climbing 0.2% to 96.987.

The Reserve Bank of India recently increased its benchmark repo rate by 25 basis points to 5.50%, adopting a more restrictive monetary policy stance. However, elevated U.S. Treasury yields and oil prices above $100 per barrel continued pressuring the currency.

Elsewhere, China's yuan remained relatively stable as domestic markets reopened following the National Day holiday. USD/CNH traded near 6.704, while USD/CNY slipped to 6.703.

The Australian dollar declined 0.2% to $0.6949, while the New Zealand dollar fell 0.4% to $0.5593, reflecting continued strength in the U.S. currency.