The Dollar Index answers to the Treasury, not the Fed

The Dollar Index fell by 0.86% on Wednesday, reaching just below 98.80, its lowest level since mid-May. The decline was not caused by any central bank action, but rather a Treasury notice regarding a government bond buyback program. The notice, released during the London afternoon, led to a significant drop in the currency's value against major counterparts.

The Treasury announced it would increase its liquidity support buyback operations by at least double, raising each operation from $2 billion to at least $4 billion in the 10-to-20-year and 20-to-30-year sectors. This change occurred just two weeks after the quarterly buyback schedule was published, and came before a $16 billion auction of 20-year paper.

Long yields fell due to disinflation and the Treasury's need to act as a bidder, causing the foreign exchange market to price the difference within minutes. The Swiss Franc lost nearly 1.8% of its value against the Dollar, while the New Zealand Dollar and Mexican Peso also weakened. Gold and silver prices rose, with gold nearing $4,500 per ounce and silver following a similar trend.

The Federal Open Market Committee (FOMC) meeting took place on July 28-29, and its record revealed a more hawkish committee than its voting results suggested. Despite this, the currency market treated the release as a non-event, as the index was already at its lowest point when the document arrived. The next scheduled chance for the Federal Reserve to address the narrative was the Jackson Hole symposium at the end of the month.