The U.S. dollar held near a three-month trough on Wednesday as the Treasury Department moved to stabilize a volatile bond market by expanding buybacks of long-dated securities. The dollar index fell to 98.558, its lowest since May 14, while the euro rose to $1.1710, the strongest since mid-May.
The Treasury’s decision to increase purchases of bonds maturing between 10 and 30 years was aimed at reducing refinancing risks and easing pressure on long-term yields, which had surged earlier in the week. The 30-year Treasury yield spiked to a 19-year high of 5.337% before easing 9 basis points to 5.22%, reflecting the market’s sensitivity to debt dynamics amid concerns over rising government borrowing.
Investor focus remained on broader macro pressures, including elevated long-end yields and geopolitical risks tied to the U.S.-Israeli conflict with Iran. Analysts noted that while the Treasury’s move mitigated one risk factor, broader fiscal and inflation concerns continued to weigh on sentiment. The yen traded at 158.51 per dollar, pulling back from a 40-year trough near 164, while sterling reached $1.3661, its highest in six months.
Market strategists said the dollar’s recent weakness reflected both technical positioning and fundamental shifts. Chris Turner, global head of markets at ING, said the buyback program "reduces one of those left-field risks out there which is good for risk, good for the investment environment and slightly dollar negative." Shaun Osborne, chief FX strategist at Scotiabank, added that "if yields can't fully take the strain from those concerns, the dollar will have to," warning that "the dollar debasement trade is making a comeback."
Attention now turns to the Federal Reserve’s Jackson Hole Symposium next week, where policymakers may signal their policy path amid competing pressures. Jonathan Pryor, head of private markets at Marex FX, said the event "feels more pivotal than ever," coming as the Fed navigates inflation risks and a potential leadership transition under new chair Kevin Warsh.
