The U.S. dollar dipped to a three-month low against major currencies, particularly the euro, as concerns mounted over the Treasury Department’s expanded bond buyback initiative. The euro climbed to approximately $1.1685, nearing a three-month high, while the dollar index (DXY) traded around 98.80. This put the greenback on track for a weekly decline exceeding 0.8%.
The depreciation followed the Treasury’s announcement to at least double the size of its buyback operations for longer-dated Treasury securities, specifically those with 10- to 30-year maturities. Treasury Secretary Scott Bessent indicated these repurchases, set to increase from $2 billion to at least $4 billion per operation starting September 9, aim to enhance liquidity in the long-end of the bond market and temper rising bond yields.
While the initial market reaction saw bond yields fall, the effect was short-lived. Long-term yields, including the 10-year yield near 4.70% and the 30-year yield approaching 5.25%, quickly reversed course, nearing levels not seen since 2007. This suggests investors view the buybacks as a limited tool for liquidity rather than a solution to underlying U.S. fiscal challenges. Marc Chandler, chief market strategist at Bannockburn Global Forex, noted that “Bessent’s efforts to suppress U.S. yields haven’t done much for U.S. yields, but it’s undermined the dollar.”
Analysts hold divided views on the long-term impact. ING suggests the buybacks are a proactive move to protect the long-end of the yield curve, potentially leading to a gradual dollar depreciation and favoring riskier assets like commodity and emerging market currencies. However, DBS Group Research remains cautious, arguing that without structural fiscal reform, the buybacks will have only a small, transient impact, and external risks like potential sanctions on Iran could reignite inflation fears and boost dollar demand. The dollar’s trajectory will likely depend on future inflation trends, Federal Reserve policy decisions, and geopolitical developments. In the interim, a weaker dollar has contributed to gains in assets like gold, which rose over 3%, and Bitcoin, up 13% over two days.
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