Dollar Strengthens for Fourth Consecutive Week Against Euro as US Yields Rise
US Dollar Performance and Market Drivers
By Chibuike Oguh
Dollar's Weekly Gains and Treasury Yields
NEW YORK, Oct 2 (Reuters) - The dollar was on track for a fourth straight weekly gain against the euro on Friday, supported by elevated US Treasury yields amid a selloff in European government bond markets and expectations the Federal Reserve will maintain its hawkish interest rate stance.
The greenback trimmed some of its recent gains after data showed US job growth in September fell short of economists' expectations and the unemployment rate edged up to 4.2%. Benchmark 10-year Treasury yields also slipped after the report before rising 5.14 basis points to 5.285%.
Factors Supporting the Dollar
Still, the dollar remained underpinned by US yields that are hovering near multi-decade highs, rising concerns over the fiscal outlook in parts of Europe, and higher oil prices. The increase in crude prices has prompted some investors to reduce exposure to currencies of major energy importers, including the euro and the yen.
Euro's Performance Against the Dollar
The euro is on track for its fourth straight week of losses against the dollar, the longest such stretch since mid-May 2025. It was last up 0.13% at $1.12580.
Expert Commentary on Economic Data
"When I look at the (jobs) data in aggregate, I think about it as actually a Goldilocks set of numbers: so activity is still pretty resilient but it's not generating significant inflationary pressure," said Dominic Bunning, head of G10 FX strategy at Nomura.
"That's a good backdrop from a broad economic perspective. It should be a relatively good number for risk assets in general and for high beta currencies. It also probably at the margin doesn't have a huge impact on Fed pricing, but it removes a little bit of tail risk as to whether they would hike again in October."
Federal Reserve Policy and Market Reactions
The US central bank raised rates and signaled more hikes after the end of its policy meeting last month, with Fed Chair Kevin Warsh reaffirming monetary policy independence despite repeated calls from US President Donald Trump for lower borrowing costs. Markets responded by raising their bets on further tightening.
Traders are pricing in an 86% chance that the Fed will hold rates steady later this month, compared with 36% a week earlier, according to CME Group's FedWatch tool.
Dollar's Performance Against Other Currencies
The dollar weakened 0.30% to 0.8285 against the Swiss franc. It was also down 0.15% to 157.81 against the Japanese yen, but on track for its third straight weekly increase.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, was down 0.1% to 101.88. It is set for its third straight weekly gain.
European Market Concerns
European Government Bond Markets
EUROPEAN WORRIES
European countries on Friday agreed to release diesel stocks. US President Donald Trump had pressured governments to do so, in a bid to cool surging fuel prices linked to the Iran war.
Euro zone inflation is likely to increase in the coming months, keeping pressure on the European Central Bank to raise rates.
French and Italian Bond Yields
French and Italian government bonds have come under selling pressure in recent weeks amid expectations of rising policy rates and growing political risk as 2027 elections loom, with French 10-year yields jumping on Thursday to their highest level since 2002.
The premium of French 10-year government bond yields over safe-haven German ones rose to above 150 basis points on Friday, its highest since late 2011, as worries about France's finances and political turmoil grew.
Euro's Performance Against Other Currencies
The euro was down 0.15% against the Swiss franc to 0.9327 but was flat at 177.67 against the Japanese yen. The single currency is headed for weekly losses against both the Swiss franc and the yen.
Analyst Insights
"For all the hand wringing on France risks, EUR/CHF resilience stood out until this week's sharp selloff. Skew premium in risk reversals has similarly widened out to historical extremes," said Bank of America analysts in an investor note.
(Reporting by Chibuike Oguh in New York; Editing by Paul Simao and Andrea Ricci )
