The U.S. dollar weakened to its lowest level in three months on Wednesday, with the dollar index falling 0.9% to 98.80 as longer-dated Treasury yields declined following the Treasury’s announcement of expanded buyback operations.
The 30-year Treasury yield dropped 7.2 basis points to 5.213%, after reaching 5.337% the prior day—the highest since June 2007. The Treasury said it would at least double the size of its buyback operations for long-dated bonds, targeting the 10-year to 20-year and 20-year to 30-year sectors, to enhance liquidity in the market. Lawrence Gillum, chief fixed income strategist at LPL Financial, noted that the recent rise in long-end yields reflects a normalization rather than a crisis, driven by heavy fiscal supply, AI-related corporate issuance, and residual energy-price inflation risks.
The Federal Reserve’s July meeting minutes, released on Wednesday, showed policymakers maintaining the current federal funds rate target range while emphasizing heightened uncertainty around inflation. Most participants supported keeping rates steady but acknowledged that incoming data could clarify the inflation outlook. Several officials highlighted upside risks to inflation, citing the re-escalation of Middle East tensions as a potential driver of supply chain disruptions and upward price pressures.
The dollar’s decline extended across major currencies, with the euro gaining 0.8% to $1.1674 and sterling advancing 0.6% to $1.3606. The Japanese yen weakened 0.9% against the dollar to 158.21, while the South Korean won strengthened nearly 2%, with the USD/KRW pair falling 1.7% to 1,389.02. The Indian rupee was little changed, declining 0.1% to 95.568.
The Treasury’s move to expand buyback operations follows a recent sell-off in longer-maturity bonds, which had pushed yields higher amid concerns over inflation and heavy debt issuance by major corporations funding AI infrastructure. The Fed’s minutes underscored the delicate balance policymakers face in assessing inflation risks amid geopolitical and economic uncertainties.
