The dollar slipped toward a three-month low against the euro on Friday as Treasury's expanded buyback plans rattled currency markets. Analysts say the strategy meant to hold down bond yields is instead pressuring the greenback, while the yen and sterling also moved against it.
The dollar slipped on Friday, trading near a three-month low against the euro, as concerns mounted that the U.S. Treasury's plan to expand buybacks of longer-dated government debt could weigh further on the currency. The dollar index fell 0.05% to 98.79, while the euro rose 0.03% to $1.1682 after earlier touching $1.1711, its highest since May 14.
Bessent's buyback pledge unsettles the dollar
Treasury Secretary Scott Bessent said Thursday he may increase the government's repurchases of Treasuries even further, a day after the department pledged to at least double the size of its buybacks of longer-dated debt to rein in bond yields. But long-dated yields jumped this week regardless, with the 30-year yield reaching its highest level since 2007.
Traders cited the deteriorating fiscal outlook, heavy issuance, geopolitical risk from the war with Iran, and uncertainty over the Fed's policy path. As a result, analysts say holding yields down has simply shifted the burden of fiscal concerns onto the currency. According to Marc Chandler, chief market strategist at Bannockburn Global Forex: "The market is pushing back."
Sterling and yen firm as dollar weakens broadly
Sterling strengthened 0.04% to $1.3635, reaching $1.3675 at one point, its highest since February 11.
The yen strengthened 0.14% to 158.82 per dollar after data showed core consumer inflation accelerated in July, bolstering the case for a rate hike by the Bank of Japan. Investors say the yen could resume its decline unless the BOJ tightens policy further. The BOJ's next policy meeting is on September 17 and 18.
Fed funds futures traders are currently pricing 35% odds of a September rate hike, rising to 69% by December. The next test for yields comes next Friday, when Fed Chairman Kevin Warsh speaks at the Jackson Hole Symposium, after he offered few clues on the policy path following July's divided meeting.
Source: Reuters
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