The USD is trying to extend its rally this week, but Monday’s price action is showing some fatigue. The DXY Index jumped 0.6% during the Asian session to 102.55 before surrendering most of the move, ending overnight only 0.2% higher. An early attempt to sell EUR on France’s sovereign debt concerns also lost momentum at 1.1160 after the 10Y OAT-Bund spread narrowed below 140 bps to 137 bps. The retreat made it harder for markets to extrapolate France’s fiscal problems into a broader euro area story, particularly with the European Central Bank’s anti-fragmentation tools providing a backstop against contagion.
The overnight session demonstrated that prolonging the “buy USD” trade with a “sell EUR” strategy will be difficult to sustain unless widening OAT-Bund spreads overshadow the rise in long-dated Treasury yields.
The bigger story remains the US bond market. The 30Y US Treasury yield climbed another 4.3 bps to a new high of 5.66%, while the 10Y rose 3.4 bps to 5.30%. US Treasury Secretary Scott Bessent acknowledged that he cannot control the bond market, a notable climbdown from last month’s warning that he was “the house.” Rising long yields are keeping Treasury credibility at the centre of the USD debate. Markets should also not ignore the contrast with France. Paris is responding to bond-market pressure with fiscal consolidation in its 2027 Budget, while Washington has yet to offer a comparable response to record federal debt, focusing instead on managing the pressure of long-term borrowing costs.
Yet, US risk assets refused to buckle. The S&P 500 Index gained another 0.7%, while the Nasdaq Composite Index rose 1.1%, extending Friday’s gains. Strong earnings, resilient consumer spending, and AI-related investment continue to support the US growth resilience story even as financial conditions tighten. The September Services ISM PMI report reinforced this view. The headline index eased only modestly to 54.9 from 55.4, employment recovered to 50.1 from 47.8, while prices paid rose to 74.0 from 72.9.
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“You don't have to be the best, but you have to be dangerous. You have to learn just enough to be dangerous to build the idea, concept it, and show it to the world.”
Kevin Systrom
Today in history
Kevin Systrom and Mike Krieger officially launched Instagram as an iOS photo-sharing app on October 6, 2010.
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