In the first week of October 2026, the US dollar climbed to its highest point in seventeen months, carried upward by the twin currents of elevated Treasury yields and a global retreat toward safety. The euro, meanwhile, bore the weight of France's deepening fiscal anxieties and the political uncertainty of an approaching election, falling to levels not seen since May 2025. Beneath the surface of these currency moves lies a larger question that markets have not yet resolved: how many times will central banks actually raise rates, and what will the world look like when they do?
Dollar Strengthens as French Fiscal Concerns Weigh on Euro
The dollar is winning because two forces are working in its favor at once.
Mark
So the dollar is strong because people think the Fed won't raise rates as much as they thought a week ago. That seems backwards—shouldn't a weaker Fed mean a weaker dollar?
Mimi
It does seem counterintuitive, but there are two things happening at once. Yes, the Fed rate expectations shifted. But at the same time, there was a massive selloff in global bond markets, and that's driving money into dollars as a safe haven. The higher Treasury yields are also making US assets more attractive. Both forces are pushing the dollar up.
Luke
But we should be careful about the causality here. The jobs data came out Friday, and that's what spooked the rate hike expectations. But the bond rout happened before that. So which is actually driving the dollar strength—the flight to safety, or the rate repricing?
Mimi
Both, probably. The bond rout created the volatility and the safe-haven bid. The jobs data then confirmed that the Fed wouldn't be hiking as aggressively, which removed one reason to sell dollars. They're reinforcing each other.
Mark
And the euro is getting crushed because of France's debt and political problems?
Mimi
That's part of it. France's debt levels are high, and there's political gridlock ahead of next year's election. That's making investors nervous about the euro. But the euro would be weak anyway in this environment—it's a cyclical currency, and when there's a flight to safety, cyclical currencies suffer.
Luke
The source says French debt was "particularly hard hit" in the bond selloff, but it doesn't give us numbers. We don't actually know how much yields rose on French government bonds or what the debt-to-GDP ratio is. We're told there are concerns, but not the magnitude.
Mimi
That's fair. The reporting is more about the market reaction than the underlying fiscal numbers. We know the euro hit its lowest level since May 2025, and it's been falling for four weeks. That's concrete.
Mark
What about the Fed rate expectations? The market went from 36% to 78% probability of no hike in October. That's a huge swing in one week.
Mimi
It is. And traders still expect a December hike and two more in the first half of 2027. But analysts think that's too aggressive. Jefferies thinks there will be only one Fed hike total, not three or four.
Luke
But that's Jefferies' base case. The source doesn't tell us what the consensus view is across the Street, or what the Fed itself is signaling. We're getting one strategist's view against what markets are pricing. That's useful, but it's not the full picture.
Mark
So we're in a moment where markets and analysts disagree about how many times the Fed will hike. That's the real story—the uncertainty.
Mimi
Exactly. And that uncertainty is playing out in currency markets in real time.
Il Polso
- A weaker-than-expected US jobs report shattered near-term rate hike certainty almost overnight, with markets swinging from a 36% to a 78% probability of the Fed holding steady in October.
- France's debt troubles and political gridlock ahead of the 2027 election are hammering the euro, which has now fallen for four consecutive weeks to its lowest level since May 2025.
- A dramatic global bond selloff last week sent borrowing costs to multi-decade highs, rattling investors and triggering a flight into the dollar and Swiss franc as safe-haven destinations.
- Analysts at Jefferies are pushing back against market consensus, arguing that either falling oil prices or slowing growth will prevent central banks from delivering the number of rate hikes currently priced in.
- Currency markets remain unsettled and in motion — sterling, yen, Aussie dollar, and kiwi all shifting as traders scramble to position for a future that refuses to hold still.
In the first week of October 2026, the US dollar climbed to its highest point in seventeen months, carried upward by the twin currents of elevated Treasury yields and a global retreat toward safety. The euro, meanwhile, bore the weight of France's deepening fiscal anxieties and the political uncertainty of an approaching election, falling to levels not seen since May 2025. Beneath the surface of these currency moves lies a larger question that markets have not yet resolved: how many times will central banks actually raise rates, and what will the world look like when they do?
The dollar opened the week of October 5, 2026, at its strongest level in seventeen months. The catalyst was a familiar one: a recalibration of expectations around the Federal Reserve. Soft employment data released the previous Friday had dimmed the case for a near-term rate hike, and that shift alone was enough to send the greenback higher across the board.
The euro was suffering a different fate. Sitting at $1.1246 — its lowest since May 2025 — the currency had declined for four straight weeks, weighed down by France's mounting debt concerns and the political uncertainty surrounding next year's election. Elsewhere, sterling traded at $1.3241, the yen at 157.69 per dollar, and the Swiss franc had strengthened more than 1% the prior week, reflecting its enduring role as a refuge in turbulent times.
The currency moves could not be separated from what had happened in bond markets just days before. A sharp global selloff had driven borrowing costs to levels not seen in decades. French debt was among the hardest hit. The US 10-year Treasury yield, after spiking to a twenty-four-year high, had retreated slightly to 5.262% but remained elevated enough to make American assets attractive to global investors. Matthew Ryan of Ebury summarized the dynamic: higher yields were drawing capital into the US, while the broader debt selloff was triggering a flight to safety — and the dollar was the destination.
The market's repricing of Fed expectations was dramatic. Traders moved from a 36% to a 78% probability of unchanged rates in October within a single week. They still anticipated a December hike and two more in early 2027, but the near-term certainty had dissolved. Analysts were skeptical. Jefferies strategist Mohit Kumar argued that by March 2027, either oil prices would have eased or, if they hadn't, growth would be slowing — and in either case, central banks would fall short of the hikes markets were pricing in. The question of how many rate increases would actually materialize remained unresolved, hanging over currency markets as traders navigated a future still taking shape.
The dollar opened the week of October 5, 2026, at its strongest level in seventeen months, buoyed by a shift in how traders were thinking about the Federal Reserve's next move. Soft employment data released on Friday had dimmed expectations for an interest rate increase this month, and that recalibration was enough to send the greenback higher across the board. Meanwhile, the euro was taking a beating. It sat at $1.1246, having fallen to its lowest point since May 2025, weighed down by mounting concerns about France's debt levels and the political uncertainty that would accompany next year's election. The currency had now declined for four straight weeks.
The broader currency landscape reflected a market in motion. Sterling traded at $1.3241 against the dollar. The Japanese yen was at 157.69 per dollar. The dollar index, which tracks the US currency against six major peers, stood at 101.97. The Swiss franc, traditionally a refuge during turbulent times, had strengthened more than 1% the previous week and was changing hands at 0.8286 per dollar. The Australian dollar held relatively steady at $0.6956, while the New Zealand dollar edged down 0.1% to $0.5610.
The week's currency moves were inseparable from what had happened in bond markets just days before. A sharp selloff in debt securities had driven global borrowing costs to levels not seen in decades, rattling investors who were bracing for inflation risks tied to surging oil prices. French debt had been particularly hard hit. The yield on the US 10-year Treasury, which had spiked to a twenty-four-year high the previous week, had since retreated slightly to 5.262%, but remained elevated enough to make American assets look attractive to global investors.
Matthew Ryan, head of market strategy at Ebury, framed the dynamic plainly: the dollar was winning because two forces were working in its favor at once. The higher Treasury yields were drawing money into US investments. At the same time, the broad selloff in debt markets worldwide was triggering a flight to safety, and the greenback was the destination. Strategists at OCBC added that if volatility in rates remained high—which seemed likely—the pressure would continue to fall on cyclical currencies and the euro, while traditional havens like the Swiss franc and the dollar would keep their bid.
But the dollar's recent strength was not solely about safe-haven flows. Much of it had come from traders positioning for Federal Reserve rate increases in the months ahead. That calculus shifted abruptly when September employment data arrived on Friday. Job growth had slowed more than expected, suggesting the labor market was not overheating despite inflation remaining above the Fed's 2% target since the pandemic began. Mansoor Mohi-uddin, chief macro strategist at Bank of Singapore, said the data pointed toward unchanged rates in October.
The market's repricing was dramatic. Using the CME FedWatch tool, traders were now assigning a 78% probability to the Fed holding rates steady in October, compared to just 36% a week earlier. They still expected a hike in December and two more in the first half of 2027, but the near-term certainty had evaporated. Analysts, however, were skeptical that markets had it right. Jefferies strategist Mohit Kumar said his firm's base case was for just one rate hike from the Fed and one from the European Central Bank. He reasoned that by March 2027, either oil prices would have fallen or, if they remained elevated, growth would be slowing. In either scenario, central banks would not deliver the number of hikes currently priced into markets. The question of how many times rates would actually rise—and when—remained unsettled, hanging over currency markets as traders tried to position for a future that was still taking shape.
Citazioni salienti
The dollar is the main winner in the current environment as not only is the rise in Treasury yields boosting the appeal of US assets, but the broad selloff in debt globally is fuelling safe-haven flows into the greenback.— Matthew Ryan, head of market strategy at Ebury
By the time we come to March, either oil prices would be lower or if we are wrong and oil prices are elevated, we are talking slower growth. In either scenario, we do not see central banks delivering the rate hikes currently priced in.— Mohit Kumar, Jefferies strategist
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