The dollar’s decline was felt nationwide on Thursday, with the currency index slipping to 98.938 – its lowest reading since mid‑May. Investors reacted to a new Treasury plan that seeks to double liquidity support for longer‑dated bonds after a sharp sell‑off pushed the 30‑year Treasury yield to a 19‑year high of 5.337%.
Treasury’s liquidity move
In a statement released Wednesday, the U.S. Treasury Department said it would increase the size of its buyback operations for longer‑maturity securities. The goal is to provide additional market liquidity and help lower term premia without expanding the Federal Reserve’s balance sheet.
Market analyst Tony Sycamore of IG explained that the Treasury is removing longer‑duration bonds from circulation while continuing to issue short‑term bills. “It is not formal QE and not yield‑curve control, but it signals Washington is prepared to lean against rising term premia,” he said.
Impact on the dollar and other currencies
As the Treasury’s plan took shape, the dollar index fell toward its three‑month trough, while the euro rose to $1.1676 – its highest level since late May. The Japanese yen traded at 158.32 per dollar, pulling back from the closely watched 160‑yen threshold after losing much of its July intervention gains. The British pound was at $1.3603 and the Swiss franc bought 0.7981 per dollar, near a two‑month high.
Analysts weigh in on fiscal dominance
Brian Jacobsen, chief economic strategist at Annex Wealth Management, called the Treasury’s action a “temporary salve” that underscores an era of fiscal dominance and modern monetization. He warned that the Federal Reserve’s ability to influence long‑term rates is limited, noting, “Now the Treasury is going to issue more short‑term debt because of weak demand for long‑term debt. Even if the Fed hikes, the Treasury is effectively pumping more money‑like short‑term debt into the economy.”
Broader monetary context
The move comes amid ongoing concerns about inflation. Recent Federal Reserve meeting minutes revealed that several policymakers remain prepared to raise interest rates if inflation does not move toward the central bank’s 2% target. The Treasury’s liquidity boost is therefore seen as a complementary tool to help stabilize financial markets while the Fed evaluates its next policy step.
While the dollar’s slide may raise eyebrows among import‑dependent businesses and travelers, the Treasury’s strategy aims to keep borrowing costs from climbing further, which could otherwise strain both consumers and the broader economy.
What’s next?
Investors will watch closely how the expanded buyback program affects Treasury yields over the coming weeks. If the additional liquidity succeeds in lowering long‑term rates, the dollar could stabilize or even recover. Conversely, persistent inflation pressures could prompt the Federal Reserve to resume rate hikes, potentially reigniting volatility in the currency and bond markets.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
