Dollar Hits 3-Month Low as Treasury Buybacks Push Down Yields
The US dollar weakened sharply in Wednesday's trading (August 19), briefly touching a more than three-month low after Treasury yields fell following US Treasury Department intervention in the bond market. The Dollar Index (DXY) dropped approximately 0.7% to 98.92, having touched 98.77—its lowest level since May 14.
Pressure on the greenback mounted after the US Treasury Department announced it would double its long-term bond buyback operations starting September 9. The size of buybacks for 10–20 year and 20–30 year Treasuries will increase from US$2 billion to US$4 billion per operation to boost market liquidity.
The policy immediately sparked a bond rally. The 30-year Treasury yield fell by about 7 basis points to 5.21%, down from 5.337% the previous day—a level that had marked a high since June 2007. The market had previously been under pressure from heavy government debt issuance, major corporations' needs for AI infrastructure financing, and inflation risks stemming from high energy prices.
The drop in yields diminished the dollar's appeal. Long-term yields had previously been rising since the July Fed meeting as investors demanded higher premiums for holding long-duration bonds. However, softening US economic data has dampened expectations for near-term interest rate hikes, keeping short-term bond yields relatively stable.
The dollar's weakness boosted other major currencies. The EUR/USD pair rose about 0.7% to 1.1660, its highest level since mid-May, while GBP/USD strengthened to around 1.3596. The Japanese yen also strengthened, with USD/JPY falling to around 158.54, while the South Korean won posted even stronger gains against the dollar.
Source: Newsmaker.id
