Elevated U.S. inflation and frequent issuance of U.S. Treasuries have driven the 10-year U.S. Treasury note yield above 3.6% and put a lid on bonds, supporting the greenback. The U.S. Dollar is set for a strong month.

It is true that major rises in energy costs as a result of the conflict in Iran have hurt the euro recently. Along with rising geopolitical tensions, French bonds are once again far less attractive than their German counterparts, pushing yields up by 115 basis points. The euro looks set for its worst monthly performance against the dollar in over a year.

Looking at sterling, Britain’s budget deficit remains large, but recent actions by the government have signaled a greater commitment to reigning in spending. Along with signs of tighter spending, Bank of England data has shown that unsecured consumer lending picked up in August. This raises concerns about the health of the UK labor market, and further complicates the challenges posed by the Bank’s efforts to control inflation.

Looking at these factors, the dollar has a moderately bullish bias against the euro and a bearish bias against the pound. Major moves in either currency are expected to come from the release of the U.S. PCE report and the jobs report on Friday.