Investors were reeling from a steep global bond sell-off on Thursday that sent yields on benchmark US 10-year Treasuries to 5.344 percent, their highest since 2002, ahead of a US jobs report that could influence the near-term policy outlook.

The 10-year yield was last at 5.249 percent in early trading on Friday while the rest of the bond market also steadied.

The euro was at $1.1237, hugging its lowest level since May 2025, dragged by worries around France's fiscal health. The yen was steady at 158 per US dollar after data showed annual core inflation in Tokyo accelerated in September at the fastest pace in 10 months.

The dollar index, which measures the US currency against six rivals, was at 102.08, set for a 1 percent gain this week, its third consecutive weekly gain, a run it last had in May 2025.

Charu Chanana, chief investment strategist at Saxo, said investors are confronting the uncomfortable mix of sticky inflation, heavy government borrowing and large bond supply.

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"The fact that long-end yields are pushing higher even as expectations for an immediate Fed hike have eased suggests this is increasingly about the term premium and fiscal risk, not just the next Fed decision," she said.

Data on Wednesday showed US consumer prices rose less than expected in August, along with downward revisions to July's figure, leading traders to rein in wagers of a rate hike from the Federal Reserve later this month.

Two of the Fed’s top policymakers this week staked out an unusually clear case for taking in more data before deciding about another hike.

That has sharpened the focus on the US payroll report due later in the day, with data likely to show that job growth slowed in September and the unemployment rate is forecast to have been 4.1 percent for a third straight month.

"With the Fed now myopically focused on inflation and price pressures, a hot wages print could prove particularly influential for US rates, Treasuries and the USD," said Chris Weston, head of research at Pepperstone.

Brent crude futures were back above $100 per barrel as traders kept an eye on the stalled talks between US and Iran to end the conflict in the Middle East.

Sterling was at $1.3187 while the Australian dollar was 0.18 percent softer at $0.6918, both hovering around their three-month lows. The New Zealand dollar slipped 0.22 percent to $0.5591, hitting its lowest level since November 2025.

"Clearly the market is not pricing for a hawkish Fed," said Prashant Newnaha, senior rates strategist at TD Securities. "This is a flight-to-safety move spurred on by developments in Europe. In this scenario expect the dollar index and the yen to strengthen at the same time."

Much of the dollar's recent strength has come at the expense of the euro as the rising political risk in Europe and the energy shock from the seven-month-long war in the Middle East dented sentiment on the single currency.

The euro has also struggled against the yen and the Swiss franc, while yields on French debt have surged to a 14-year high as worries about France's shaky finances swirl.

Pepperstone's Weston said the nature of the dollar move is shifting. "Increasingly, the story is becoming less about US exceptionalism and more about problems elsewhere, particularly in Europe."

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