Dollar Set for Weekly Decline; Treasury Buybacks Weigh on Greenback
The US dollar traded around the 98.8 level on Friday (August 21), on track for a weekly decline of nearly 1%. Pressure on the greenback mounted after plans for US government bond buybacks sparked significant volatility in the Treasury market, prompting investors to shift toward gold and other major currencies.
The Dollar Index fell sharply on Wednesday after the US Treasury Department announced increased government debt repurchases aimed at curbing long-term borrowing costs. The policy initially drove Treasury prices up and yields down, thereby diminishing the dollar's appeal.
However, long-term yields rebounded the day following the announcement. This recovery suggests the market remains skeptical about whether buybacks can serve as a permanent solution to pressures in the US bond market, particularly given the government's massive financing needs.
Primary concerns remain focused on rising US government debt. Investors are scrutinizing fiscal risks, as the substantial deficit and interest payment costs could make dollar-denominated assets less attractive while reinforcing the "debasement trade" narrative.
Meanwhile, persistently high oil prices are adding to inflation risks. With Washington preparing new economic sanctions against Iran, fears of energy supply disruptions remain acute. Should oil prices continue to climb, inflationary pressure could intensify again, making the Federal Reserve's policy trajectory increasingly difficult to predict.
Newsmaker Analysis: The dollar retains a bearish bias on a weekly basis as long as the DXY remains below the 99.00 level and markets continue to question the US fiscal outlook. However, a resurgence in Treasury yields and inflation risks stemming from oil prices could limit the greenback's decline. If yields spike again, the dollar could still stage a rebound, even though it remains under pressure overall for the week. (asd)*
Source: Newsmaker.id
