Global bond sell-off storm sweeps markets, dollar rides the momentum to a 17-month high! Euro becomes the "hardest-hit zone"

On Friday, the dollar hovered near a 17-month high, on track for a third consecutive weekly gain. Against a backdrop of inflation concerns intensified by rising oil prices, global bond markets suffered a massive sell-off, pushing borrowing costs around the world to multi-decade peaks and adding momentum to the dollar's strength. Global bond markets plunged sharply on Thursday, weighing on sentiment. The benchmark U.S. 10-year Treasury yield spiked to 5.344%, the highest level since 2002. The market is awaiting U.S. employment data, a report that could influence the Federal Reserve's near-term policy direction. In early Friday trading, the 10-year U.S. Treasury yield fell back to 5.249%, and other global bond markets stabilized in tandem. The euro traded at 1.1245 against the dollar, hovering near its lowest level since May 2025, with lingering concerns over France's fiscal position continuing to drag on the currency. The yen held around 158 against the dollar after data showed Tokyo's September core inflation rose at its fastest year-on-year pace in 10 months. The dollar index, which measures the greenback against six major currencies, stood at 101.98, with a weekly gain of about 1% expected a third straight weekly advance, the last such streak occurring in May 2025. Charu Chanana, chief investment strategist at Saxo Bank, said investors are facing a difficult combination: sticky inflation, massive government borrowing, and elevated bond supply. She noted: "Even as expectations for an immediate Fed rate hike have cooled somewhat, long-end yields are still rising. This shows the market is increasingly driven by term premiums and fiscal risk, not just the Fed's next rate decision." Data released on Wednesday showed U.S. consumer prices rose less than expected in August, with July figures also revised lower, prompting traders to reduce bets on a Fed rate hike later this month. Two senior Fed officials this week took the unusually explicit stance of advocating for more data before deciding whether to raise rates again. That shifted market focus to the U.S. nonfarm payrolls report due later today. Expectations show September job growth slowed, with the unemployment rate forecast to hold at 4.1% for a third consecutive month. Chris Weston, head of research at Pepperstone, said: "Given the Fed is currently focused solely on inflation and price pressures, a hot wage number could have an outsized impact on U.S. rates, Treasuries, and the dollar." On oil, Brent crude futures climbed back above $100 a barrel as traders continued to monitor stalled negotiations between the U.S. and Iran aimed at ending the Middle East conflict. Sterling traded at 1.3187 against the dollar; the Australian dollar fell 0.18% to 0.6918, with both currencies near three-month lows. The New Zealand dollar dropped 0.22% to 0.5591, hitting its lowest point since November 2025. Prashant Newnaha, senior rates strategist at TD Securities, said: "Clearly, the market is not pricing in a hawkish Fed. This is a risk-aversion move triggered by European developments. In this scenario, we expect both the dollar index and the yen to strengthen simultaneously." The recent dollar strength has come largely at the expense of a weaker euro. Rising European political risks, combined with the energy shock from a seven-month Middle East war, have undermined market confidence in the euro. The euro has also weakened against the yen and the Swiss franc, while French government bond yields have surged to 14-year highs amid growing concerns over France's unstable fiscal position. Weston of Pepperstone said the nature of the dollar's rally is changing. "There are growing signs that the story is shifting from U.S. exceptionalism to problems elsewhere, especially Europe."