The U.S. dollar index posted its largest monthly gain since 2022, and U.S. Treasury yields hit a three-month high

The dollar posted its biggest one-month gain in two-and-a-half years against a basket of major currencies, fueled by signs of strength in the U.S. economy and expectations that its policies could delay interest rate cuts. The dollar index climbed 3.6 percent in October to 104.46, its biggest one-month gain since April 2022. The dollar index was volatile on Monday, closing near flat at 104.31.

Most analysts believe the market is increasingly digesting the possibility of a Republican landslide victory, with Mr. Trump winning the presidency and his party controlling both houses of Congress. Investors are now watching this week's US jobs report for October, which could be affected by the Boeing strike and two hurricanes that have hit the southeast.

(One-hour chart of the US dollar index)

Inflation data for Europe and Australia, GDP data for the United States, and purchasing managers' indices for China will also be released this week.

"The market will be watching closely for more signs of what happened in December. The market will listen to the market's reaction to the stronger non-farm payrolls data. It depends on the Fed's response function,"foreign exchange trading platformPortfolio manager Peter Vassallo said.

He cautioned that with the U.S. election still a week away, quiet days like Monday may not be the norm, because if this week's economic data is unexpected and the lack of liquidity overstates market movements, then "there is also the possibility of some unrelated wild fluctuations."

U.S. Treasury yields hit a three-month high on Monday as Wall Street rallied ahead of this week's major tech earnings on improving risk sentiment and weak government auctions highlighted weak demand ahead of next week's US Presidential Election.

Yields on U.S. two-year and 30-year bonds rose to their highest levels in about three months.

"Bond market vigilantes are on the rise again, just like in October 2023," said Greg Faranello, head of U.S. interest rate strategy at AmeriVet Securities, referring to investors selling bonds to protest massive fiscal spending, pushing yields higher. "They now have a window and [are] grabbing it. Risk is building. In a few years, this is not the same bond market."

Weak demand for US two- and five-year Treasury auctions on Monday is also understandable, analysts said, given a series of events this week and next. With the sale of seven-year Treasury bonds on Tuesday, more supply will come, with a refinancing announcement on Wednesday.

The yield on the 10-year U.S. Treasury bond jumped to its highest level since July 11 in intraday trading on Monday, at 4.3 percent, and rose 4.4 basis points to close at 4.274 percent.

U.S. 30-year bond yields hit their highest since early July at 4.555 percent in intraday trading on Monday and were last at 4.524 percent, up 2.4 basis points.

U.S. five-year Treasury yields also rose to a three-month high, closing at 4.105 percent, up 5.3 basis points.

Yields on two-year Treasuries, which reflect the Federal Reserve's interest rate movements, surged to their highest since early August on Monday, ending the session at 4.133 percent, up 3.5 basis points.

Treasury yields have jumped this month on traders' views of a stronger US economy and a less dovish Federal Reserve, exacerbated by rising speculation that former Republican President Donald Trump will win the November 5 presidential election.

As for Friday's employment data, the recent hurricanes that have affected areas such as North Carolina could have an impact on the data. "With all the volatility from the hurricane, I think the market's reaction to the data will be very interesting," said Subadra Rajappa, head of U.S. interest rate strategy at Socie ́ te ́ Ge ́ ne ́ rale.

Economists polled by Reuters said employers were expected to add 123,000 jobs in October and the unemployment rate was likely to hold steady at 4.1 percent.

Traders ruled out a further 50 basis point cut after the September jobs report was much stronger than expected. According to calculations by the London Stock Exchange Group (LSEG), the market now sees a 96.5% chance of a 25 basis point cut next week and a 3.5% chance of a pause.

The futures market expects another 43 basis points cut in 2024, a scenario that suggests the Fed may pause in December.