The US dollar held near its highest level in 18 months on Tuesday, while the euro remained under pressure near its lowest level in 17 months, as higher Treasury yields supported the US currency, while most Asian currencies remained flat.
Investors also weighed in on weaker-than-expected U.S. services sector data, which tempered expectations of a near-term Fed rate hike but pointed to continued price pressures.
The US dollar index was at 102.11, virtually unchanged, after reaching 102.21 and hitting an 18-month high in the previous session. The EUR/USD pair was at 1.123, while the GBP/USD pair edged up slightly to 1.3224.
The USD/JPY pair was at 157.92 with little change, while the AUD/USD pair was at $0.698 and the NZD/USD pair was at $0.560.
The dollar is supported by yields and persistent inflation risks.
The dollar continued its rise despite weaker-than-expected US jobs data that reduced expectations of a Federal Reserve interest rate hike this month.
Investors are still betting that the Fed will be forced to tighten its monetary policy later, given that inflation risks remain high.
US services sector activity slowed in September, but strong domestic demand put pressure on supply chains and pushed up the prices that companies pay for production inputs.
The data indicated that inflation could remain high into next year, narrowing the Federal Reserve's room for sharp monetary policy easing.
High Treasury yields remain a key support for the dollar, as long-term U.S. borrowing costs remain elevated amid market assessments of inflation risks, public finances, and the outlook for monetary policy.
The euro weakens as Europe faces financial and energy risks.
The EUR/USD pair was near the $1.1225 level, after the euro fell to its lowest level since May 2025 in the previous session.
The currency's weekly decline extended to around 1.2% amid political uncertainty and financial concerns in the Eurozone.
The euro also came under pressure due to concerns about rising energy costs and their potential impact on regional growth and inflation.
This comes at a time when investors are weighing the possibility that the European Central Bank may have to keep its monetary policy restrictive for a longer period.
The Indian rupee is nearing record lows as the central bank intervenes.
The Indian rupee came under pressure, with the USD/INR pair rising 0.31% to 96.593 as the dollar remained strong.
The Reserve Bank of India is expected to continue to mitigate the rupee's decline through market intervention, according to Reuters.
The rupee closed at 96.2925 on Monday, and is now about 0.6% away from its record low of 96.96 reached in May.
The Reserve Bank of India is scheduled to announce its monetary policy decision on Wednesday, and markets expect a 25 basis point rate hike to 5.50%, which would be the central bank's first increase in four years and could provide some support for the rupee.
The central bank also intervened in the foreign exchange market to slow the rupee's decline, although traders expect it to continue to mitigate volatility rather than defend a specific exchange rate level.
Regional currencies are awaiting monetary policy and growth signals.
The Chinese yuan remained largely stable, with the USD/CNH pair at 6.702 and the USD/CNY pair at 6.705.
China is currently in the middle of a week-long National Day holiday, which has kept domestic trading activity limited.
The USD/KRW pair was at 1,341.40 with little change, while the USD/SGD was at 1.2791.
Bank of America sees Indonesia facing slower growth and higher inflation risks, while Malaysia may raise interest rates to 3% in November; the Philippines faces renewed inflationary and fiscal pressures, and Singapore may need further monetary policy tightening as core inflation remains high.
Thailand’s recovery is supported by investment in artificial intelligence and fiscal measures, but it faces risks from oil prices and flooding, with interest rates expected to remain unchanged until 2027.
