The US dollar remained steady on Thursday, holding near recent highs as Treasury yields rose across the curve.
Minutes from the Federal Reserve’s September meeting showed that almost all officials viewed inflation risks as tilted to the upside.
Markets assign close to a 20% probability of a hike at this month’s meeting, but an increase is anticipated by year-end, with further tightening expected into mid-2027.
That pricing continues to support yields even as some recent Fed comments were less hawkish following softer PCE inflation and labour-market data.
However, some officials remain hawkish. Weakness in the euro provides another source of support, with ongoing concerns over French public finances keeping the single currency near multi-month lows.
Ongoing tensions in the Middle East are also sustaining safe-haven demand for the dollar. At the same time, renewed strength in oil prices could intensify inflation concerns, reinforcing upward pressure on yields and providing the currency with an additional tailwind.
At the long end, Treasury yields remain near multi-decade highs amid fiscal concerns. Federal debt now exceeds USD 40 trillion, while annual interest costs are around USD 1 trillion. Strong demand for the latest 10-year limited some of the upward pressure, but it does little to remove the broader fiscal concerns keeping longer maturities elevated.
Looking ahead, weekly jobless claims could provide the next test. A clear deterioration in employment conditions could challenge the year-end hike, particularly if accompanied by more cautious Fed commentary. That would pull yields lower and leave the dollar more exposed to a correction.
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