U.S. Dollar Strengthens to One‑and‑a‑Half Year High

The U.S. dollar index jumped 0.6% on Thursday, reaching 102.03 – its highest level since April 9, 2025. The rally was attributed to rising inflationary concerns after data showed U.S. manufacturers facing higher raw‑material costs.

Euro Weakens After French Budget Announcement

The euro slipped 0.7% to $1.1243, marking its worst daily performance since June 17. The decline followed the presentation of France’s 2027 budget, which sets a public‑deficit target of 5% of GDP. French officials noted a current deficit projection of 5.4% of GDP for the year and public debt nearing 120% of GDP. Prime Minister Sébastien Lecornu announced a €54 billion ($60.71 billion) effort to bring the deficit down to 4.8%, with the added defense spending bringing the target to 5%.

ISM Manufacturing Data Highlights Price Pressures

The Institute for Supply Management (ISM) reported that its prices index rose to 77.9 in September, up from 71.1 in August and close to the March peak of 78.3 observed at the start of the U.S.–Iran conflict. Despite the price increase, the ISM’s overall manufacturing activity gauge expanded for the ninth consecutive month in September.

U.S. Treasury Yields and Yen Movement

In the bond market, the benchmark 10‑year Treasury yield fell 6.5 basis points to 5.246%, while the 30‑year yield slipped 2.3 basis points to 5.616%, ending a steep sell‑off that had pushed longer‑term yields toward 20‑year highs.

The Japanese yen weakened 0.5% to 158.17 per dollar, moving back toward multi‑week lows after mixed signals from the Bank of Japan’s September meeting. Board members were divided on the pace of rate normalization, leading money markets to cut the probability of a BOJ rate hike at the October 30 meeting to under 20%, down from over 30% earlier in the week, though a December move remains fully priced in.

Market Commentary

Macquarie global FX and rates strategist Thierry Wizman noted that the widening spread between French OATs and German Bunds reflects higher sovereign‑default risk in France, largely driven by political uncertainty surrounding the upcoming April election. He suggested that the euro has not yet fully priced in this risk, reinforcing a robust USD view.

Outlook

Attention now turns to Friday’s non‑farm payrolls report for further clues on the Federal Reserve’s future interest‑rate path, after Wednesday’s indicators suggested stronger U.S. growth, a resilient labor market, and cooling inflation, prompting a sharp reduction in October Fed‑rate‑hike bets.