Dollar Hovers Near Three-Week Low as Geopolitical Risks Offset Easing Yields

The U.S. dollar held near a three-week low on Wednesday, with its recovery efforts hampered by falling U.S. Treasury yields that offset safe-haven demand from geopolitical tensions and volatility in technology stocks.

Dollar's Momentum Capped

The U.S. Dollar Index (DXY), which measures the currency against a basket of six major peers, edged up 0.1% to 101.79. This minor gain follows a 0.3% decline in the previous session that took the index to its lowest point since early October, according to an Investing.com report.

While the dollar drew some support from risk-averse sentiment, fueled by reports of Iran refusing negotiations with Washington and increased volatility in AI-related equities, its upside was limited. A flight to safety by institutional investors into long-duration bonds has pushed U.S. Treasury yields lower, reducing the dollar's relative attractiveness.

Euro and Yen Face Headwinds

The euro weakened, with the EUR/USD pair dipping 0.1% to $1.1220, extending its monthly decline to nearly 1%. The currency is being weighed down by deep-seated political and fiscal concerns in France, the eurozone's second-largest economy. The French government confirmed it would deploy military forces to assist police ahead of nationwide protests, contributing to investor anxiety. This social unrest has driven French 10-year borrowing costs near a 24-year high and widened the country's sovereign credit default swap (CDS) spread against German benchmarks.

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In Asia, the Japanese yen remained stable, with the USD/JPY pair trading near the 158.00 level. Traders remain cautious and on high alert for potential currency intervention by Japanese authorities, as the exchange rate is near levels that have previously prompted official warnings. The yen also finds fundamental support from expectations that the Bank of Japan will continue its gradual monetary policy normalization.

Central Bank Decisions Loom

Currency markets are positioning cautiously ahead of a series of central bank policy announcements scheduled for October 28-30.

• U.S. Federal Reserve: Markets widely expect the Fed to hold its policy rate in the 3.75% to 4.00% range, though fixed-income traders continue to price in the possibility of a policy adjustment in December.
• Bank of Japan: The BoJ is anticipated to keep its benchmark rate unchanged at 1.25% following a historic rate hike in September. Investors will closely watch Governor Kazuo Ueda's press conference for clues on the timing of future rate increases.