On Friday, the dollar hovered near a 17-month peak and was on track for a third straight weekly gain, as intensifying inflation worries fueled by rising oil prices triggered a broad global bond market rout, pushing borrowing costs around the world to multi-decade highs and lending further support to the greenback.

A sharp plunge in global bond markets on Thursday weighed heavily on sentiment. The benchmark US 10-year Treasury yield spiked as high as 5.344%, the highest since 2002. Markets are now waiting for US employment data, which could shape the Federal Reserve's near-term policy path. In early Friday trade, the 10-year Treasury yield eased back to 5.249%, with other global bond markets stabilizing in tandem.

The euro traded at 1.1245 against the dollar, hovering near its lowest level since May 2025, as lingering concerns over France's fiscal position continued to drag on the single currency. The yen held around 158 per dollar after data showed Tokyo's core inflation in September rose at its fastest annual pace in 10 months. The dollar index, which measures the greenback against six major currencies, stood at 101.98 and was expected to post a weekly gain of about 1%, its third consecutive weekly rise, a streak last seen in May 2025.

Charu Chanana, chief investment strategist at Saxo Bank, said investors are facing a difficult combination: sticky inflation, heavy government borrowing and a flood of bond supply. She noted that even as expectations for an immediate Fed rate hike have cooled, long-end yields are still climbing, signaling that the market is increasingly driven by term premium and fiscal risk rather than just the Fed's next rate decision.

Data released on Wednesday showed US consumer prices rose less than expected in August, with July figures also revised lower, prompting traders to scale back bets on a Fed rate hike later this month. Two senior Fed officials made unusually explicit remarks this week, arguing for gathering more data before deciding whether to raise rates again. That has shifted market focus to the US nonfarm payrolls report due later today. Expectations point to slower job growth in September, with the unemployment rate forecast to hold at 4.1% for a third straight month.

Chris Weston, head of research at Pepperstone, said that with the Fed focused squarely on inflation and price pressures, a hot wage number could have an outsized impact on US rates, Treasuries and the dollar. In oil markets, Brent crude futures climbed back above $100 a barrel as traders continued to monitor stalled negotiations between the United States and Iran aimed at ending conflict in the Middle East.

Sterling traded at 1.3187 against the dollar, while the Australian dollar fell 0.18% to 0.6918, with both currencies near three-month lows. The New Zealand dollar dropped 0.22% to 0.5591, touching its weakest level since November 2025. Prashant Newnaha, senior rates strategist at TD Securities, said it is clear the market is not pricing in a hawkish Fed, describing the move as a safe-haven flow driven by European developments and predicting that both the dollar index and the yen will strengthen simultaneously in this scenario.

The dollar's recent strength has come largely at the euro's expense. Rising political risk in Europe, combined with the energy shock from a seven-month-long Middle East conflict, has undermined confidence in the euro. The euro has also weakened against the yen and the Swiss franc, while French government bond yields have surged to 14-year highs amid persistent worries about France's unstable fiscal position. Weston of Pepperstone said the nature of the dollar's rally is changing, with growing signs that the story is shifting from US exceptionalism to problems elsewhere, especially Europe.