Dollar near 18-month high as Fed minutes point to another rate hike

The dollar held close to an 18-month high after minutes from the Federal Reserve's September meeting showed most officials expect another rate hike before the end of the year. Investing.com reports that the dollar sat at a nearly 18-month high on the minutes, as the euro and sterling slid.

Fed minutes set the tone

The Fed published the minutes of its September 15-16 meeting on Wednesday. According to investingLive, most participants assessed that another hike would likely be appropriate by year end.

Inflation data added to the hawkish mood. The New York Fed consumer survey showed one-year inflation expectations at 3.9%, up from 3.6% and the highest since 2023, investingLive reports. Three-year expectations rose to 3.3% from 3.2%, while the five-year measure held at 3%.

The bond market took the news calmly. The US Treasury sold $39 billion of 10-year notes at a high yield of 5.300%, below the 5.317% when-issued level, with a bid-to-cover of 2.77 times against an average of 2.54, according to investingLive. Investing.com says the US bond market fared better than Europe after the strong auction. Earlier in the day, investingLive noted the 30-year yield touched 5.70%, its highest since 2002.

The majors

The latest ECB reference rates in our data are the fixings of 7 October, compared with 6 October. They predate the Fed minutes.

Since the fixing, the headlines show:

• Euro: FXStreet says the euro gave back its bounce as French 10-year yields rose again. Banque de France Governor Moulin said the strain in French bonds is serious but does not meet the conditions for ECB help. See the EUR/USD chart.
• Pound: GBP/USD trades just above 1.3200, the floor of every session since September 24, FXStreet reports. Investing.com notes EUR/GBP hit a 16-month low.
• Yen: Japanese pay grew faster than forecast in August, yet the yen weakened. USD/JPY is back near 158.00 after touching its highest since September 25, according to FXStreet.
• Aussie: AUD/USD lost over 0.29% on Wednesday to trade at 0.6963, FXStreet reports.
• Peso: USD/MXN trades at 17.98, virtually unchanged, as the peso's winning streak ended, per FXStreet. For background on how yields move these currencies, see our sister site's guide to risk-on and risk-off in forex.

Gold and geopolitics

Gold fell to a near two-month low around $4,110 in early Asian trade on Thursday, as a stronger dollar and high Treasury yields reduced its appeal, FXStreet reports.

Geopolitical risk rose late in the day. FXStreet, citing Axios, reports that the Pentagon told US Central Command to finish preparations for resuming major combat operations in Iran, as President Trump weighs timing. Oil exposure matters for Asia: a Reuters poll cited by investingLive found 37% of Japanese firms see oil volatility as the biggest risk to earnings. Track the dollar index on the DXY chart.

What to watch next

• China reopens: mainland Chinese markets return on Thursday after a week-long holiday, investingLive says.
• Iran: any decision on the timing of US strikes, per the FXStreet report above.
• French bonds: whether the OAT selloff continues after Moulin's comments.
• UK budget: Investing.com lists the options for Chancellor Healey ahead of the October 28 budget.
• Weather: investingLive flagged Tropical Storm Isaias forming in the Gulf.

FXcash Markets Desk