The U.S. dollar is retaining its strength despite a sharp decline in expectations for an October Federal Reserve rate increase. The U.S. dollar index, DXY (a measure of the dollar against major currencies), traded near 102.00 on Friday, around a 17-month high and on course for a third consecutive weekly gain. Its 1% advance this week indicates that reduced expectations for an immediate Fed hike have not meaningfully weakened demand for the currency. Traders now assign roughly 25% to 28% odds to an October increase, down from 70% a week earlier. The 10-year Treasury yield remains near 5.25% after briefly reaching 5.34%, its highest level since 2002. European fiscal concerns are also supporting the dollar, with French government bonds under pressure and the euro down 2.5% in September. EUR/USD traded near $1.1240 after breaking long-term support, while GBP/USD was around $1.32, USD/JPY near 158 and USD/CAD at 1.4220. The euro remains close to its weakest level since May 2025 and accounts for 57.6% of the DXY, making its performance especially influential. Japan’s currency has a domestic factor in focus after Tokyo core inflation accelerated to 2.7% in September, strengthening the case for further Bank of Japan tightening, although USD/JPY also remains sensitive to U.S. yields and the expected interest-rate gap between the two economies. Friday’s U.S. payrolls report is expected to show 90,000 new jobs, unemployment at 4.1% and annual wage growth of 3.2%, up from 3.1% in August. Wage growth and revisions to August’s unexpectedly strong 162,000-job increase will be closely watched. A solid September headline combined with substantial downward revisions could make the labor market appear weaker and limit any initial dollar rally.