Dollar Near Two-Month High as Treasury Yields Rise and Inflation Fears Mount

The dollar on Thursday held near a two-month high as U.S. Treasury yields continued to climb and concerns intensified that the war in the Middle East will sustain upward pressure on global prices.

Data showed U.S. inflation rose in August by less than expected, with July figures revised down, which reduced expectations of a rate hike this month.

However, a sharp rise in inflation in the euro area highlights the threat that higher energy prices pose to the global economy.

The euro slipped slightly to $1.1330 in early Asian trading, after losing about 2.5% in September, its largest monthly drop since July 2025, under pressure from debt concerns and an energy crisis in Europe.

The pound steadied at $1.3264, after falling around 2.1% last month, also affected by a stronger dollar.

The dollar index was at 101.48, near a two-month high, after rising about 2% in September.

Global bonds suffered their biggest monthly decline in years in September, pushing yields higher as a result of a mix of deteriorating government finances, heavy issuance, and rising inflation. A drop in expectations of a U.S. rate hike this month caused a slight fall in short-term Treasury yields, but 10- and 30-year yields hit new highs overnight.

The yen fell 0.2% to 157.82 against the dollar despite gaining about 1.5% last month. Kit Jux, chief foreign-exchange strategy analyst at Société Générale, said: "The yen was the strongest G10 currency (in September), and it is clear that the market's reluctance to fall into the intervention trap has had an effect."

A summary of opinions from the Bank of Japan's September meeting held on Thursday showed that some policymakers thought it necessary to speed up the pace of rate hikes or bring them closer to the 'target' set by the central bank as soon as possible.

The Australian dollar fell to a two-month low at $0.6940 as investor bets grew that the Reserve Bank of Australia would not raise interest rates in the near term, after local inflation came in slightly below expectations. The New Zealand dollar also slid toward its lowest since November 2025, standing at $0.5636.