Overview

The U.S. dollar surged on Thursday, lifting the dollar index 0.6% to 102.03 – the highest level recorded since April 9, 2025. The rally was spurred by inflationary concerns after data showed U.S. manufacturers facing higher raw‑material costs. At the same time, the euro weakened 0.7% to $1.1243, marking its worst single‑day decline since June 17, after France presented its 2027 budget that targets a public‑deficit ratio of 5% of GDP.

U.S. Market Data

  • The Institute for Supply Management (ISM) prices index climbed to 77.9 in September, up from 71.1 in August and near the March peak of 78.3 observed at the start of the U.S.–Iran conflict.
  • The ISM overall manufacturing activity gauge expanded for the ninth consecutive month, indicating continued sectoral growth.
  • Treasury yields reversed a steep sell‑off: the benchmark 10‑year yield fell 6.5 basis points to 5.246%, while the 30‑year yield slipped 2.3 basis points to 5.616%.
  • Market participants now look ahead to Friday’s non‑farm payrolls for further clues on the Federal Reserve’s rate‑setting trajectory. Earlier indicators suggested robust growth, a resilient labour market and cooling inflation, prompting a sharp reduction in October Fed‑rate‑hike expectations.

French Fiscal Outlook

  • France’s budget bill for 2027 was unveiled, emphasizing a public‑deficit target of 5% of GDP. The current year’s deficit is projected at 5.4% of GDP, with public debt approaching 120% of GDP.
  • Prime Minister Sébastien Lecornu announced a €54 billion ($60.71 billion) effort to bring the deficit down to 4.8%, and after adding new defence spending, the overall deficit will be 5%.
  • French OAT yields have risen, with the 10‑year OAT cost reaching its highest level since July 2002, and the spread over German Bunds widening.
  • Thierry Wizman, global FX and rates strategist at Macquarie, attributed the OAT/Bund spread widening to heightened sovereign‑default risk in France, noting the political uncertainty surrounding the April election.

Asian Currency Movement

  • The Japanese yen depreciated 0.5% to ¥158.17 per dollar, drifting toward multi‑week lows after mixed signals from the Bank of Japan (BOJ). A summary of the September BOJ meeting revealed divisions among board members on the pace of rate normalisation.
  • Some policymakers favoured a faster move toward target rates, while others warned that domestic demand contracted in Q2, questioning sustainable economic expansion.
  • Consequently, money‑market pricing for a BOJ rate hike at the October 30 meeting fell to under 20% from over 30% earlier in the week, though a December move remains fully priced in.

Market Implications

The combination of a stronger dollar, a weakening euro, and volatile sovereign spreads underscores heightened risk‑aversion in global currency markets. Elevated U.S. Treasury yields and mixed BOJ signals suggest divergent monetary‑policy trajectories, while France’s fiscal stance adds sovereign‑risk considerations for euro‑area investors.