Dollar Firms at 2026 Highs as Yields Ease, Payrolls Loom

The Dollar Index sits at 101.92, up 0.73% as Friday's session runs its final hours into the US jobs report. Thursday's completed session saw the index push to 2026 highs on growing Fed rate-hike expectations, a move that overpowered hotter-than-expected September inflation prints across several eurozone economies and a firmer final HCOB Eurozone Manufacturing PMI (52.9, revised up from 52.7). Equities are little changed — the S&P 500 is flat at 7671.10 (-0.01%), the Dow is off 0.20%, the Nasdaq is up 0.14% — and the VIX sits at 16.38 (+0.24%), a calm backdrop for a dollar move built on rates, not risk aversion.

Treasury yields are easing today after Thursday's push to multi-decade highs: the 10-year is at 5.218% (-7.5bp on the day), the 30-year at 5.584% (-5.4bp), the 5-year at 4.986% (-10.3bp) and the 3-month at 3.987% (-4.3bp). The policy backdrop remains the September 16 Fed hike to a 3.75-4.00% target range, a 12-0 vote and the first hike since 2023, with most officials projecting at least one more move this year — the live question is further hikes, not cuts. Against that, a headline today cites Fed's Jefferson as seeing no urgency for another rate increase, a dissenting note inside an otherwise hawkish-leaning set of expectations.

EUR/USD is at 1.1225 (-0.92%), slipping as dollar strength tied to the yield move outweighs a firmer eurozone Manufacturing PMI; the flash CPI estimate is due later today. GBP/USD is at 1.3185 (-0.59%), pushing to fresh three-month lows below Thursday's slide to near 1.3193 (lowest since late June) as US yields and oil-driven inflation worries overshadowed BoE's Catherine Mann calling for a sufficiently restrictive Bank Rate path. USD/JPY is at 158.07 (+0.42%), with the yen softer as wide US-Japan rate differentials and elevated Treasury yields keep the pair bid. USD/CAD is at 1.4242 (+0.07%), little changed near two-month lows for the Canadian dollar.

USD/CAD is at 1.4242, up 0.07% and holding near the two-month lows for the Canadian dollar set in Thursday's completed session. The move rests on broad dollar strength tied to Fed rate-hike expectations widening the US-Canada rate differential, plus soft Canadian growth data — StatCan reported July GDP flat and an August advance estimate of just 0.2% — reinforcing expectations that the Bank of Canada, unchanged at 2.25% for seven straight meetings, will stay on hold at its October 28 decision. Oil is sending mixed signals: WTI is up 3.45% to 93.42, while Brent has pulled back 2.36% to 101.09, after Thursday's rally on China suspending fuel product exports. No Canadian data are due today; US payrolls at 8:30am ET is the pair's key event.

Later today: the eurozone flash CPI estimates are due at 19:00, with the headline forecast at 3.7% y/y (prior 3.3%) and the core reading forecast at 2.5% y/y (prior 2.4%), following hot national inflation prints already reported this month. Earlier releases include Spanish Unemployment Change at 17:00 (forecast 17.6K, prior 44.4K) and Italian Retail Sales m/m at 18:00 (forecast -0.1%, prior -0.4%). The main event is the US September Employment Situation at 22:30: Non-Farm Employment Change is forecast at 89K (prior 162K), the Unemployment Rate at 4.1% (prior 4.1%), and Average Hourly Earnings m/m at 0.3% (prior 0.3%).