Buyback Fails to Calm Markets; Dollar Takes a Hit
The US dollar briefly fell to a three-month low against the euro during Thursday's trading (August 20) after the US Treasury moved to quell volatility in the bond market. However, the greenback later pared its losses as Treasury yields resumed their upward climb. The Dollar Index (DXY) was last trading around 98.93, while EUR/USD hovered near 1.1672 after earlier touching 1.1710—its highest level since May 14.
Initial pressure on the dollar emerged after the Treasury announced it would double the size of its buybacks for 10- to 30-year bonds to at least US$4 billion per operation. The move aimed to calm a bond market that had previously suffered a sharp sell-off driven by concerns over the massive US fiscal deficit and rising government funding costs.
The announcement triggered a sharp drop in the dollar and boosted assets like gold and Bitcoin, fueled by the "currency debasement" narrative. Investors began to question whether government efforts to suppress yields—amidst heavy debt and deficits—might actually heighten concerns regarding the dollar's purchasing power and long-term inflation risks.
However, the bond market subsequently exerted renewed pressure. Treasury yields rose again on Thursday, signaling that investors remained unconvinced that the buyback program could resolve structural issues in the US debt market. Analysts suggest the market is currently testing the extent to which Treasury Secretary Scott Bessent is willing to intervene further to cap rising yields.
The dollar's weakness also supported the Japanese yen, with USD/JPY trading around 159.13, while the British pound rose to approximately US$1.3622, briefly hitting its highest level since February. Market focus has now shifted to the upcoming speech by Fed Chair Kevin Warsh at Jackson Hole next week. Minutes from the July FOMC meeting previously revealed that many officials remained open to raising interest rates if inflation failed to decline; markets currently price in a roughly 35% chance of a Fed rate hike in September and nearly 67% by December.
Newsmaker Analysis: The dollar is currently caught in a tug-of-war between US fiscal concerns weighing on the greenback and a resurgence in Treasury yields that could provide support. As long as the DXY remains below 99.00, pressure on the dollar has not fully dissipated. However, if Warsh signals a hawkish stance at Jackson Hole and yields climb again, the dollar could rebound. Conversely, if markets increasingly question the credibility of fiscal policy and Treasury buybacks continue to expand, the "debasement trade" narrative could once again favor gold, Bitcoin, and other major currencies.
Source: Newsmaker.id
