98.75 support tested; US Dollar Index under pressure amid US debt buyback plan

US Dollar (USD) weakened on Wednesday after US Treasury Secretary Scott Bessent revealed a plan to purchase long-term government debt in order to stabilize bond yields. The US Dollar Index (DXY), which gauges the value of the Dollar against six major currencies, fell nearly 0.9% for the day, hitting the three-month low of 98.75, currently being tested.

Deutsche Bank analyst George Saravelos stated that this move functions as a "soft financial repression policy aimed at supporting the long end of the US yield curve," and that a weaker Dollar is required to offset the impact on foreign investors holding US Treasuries. This news came amidst hawkish Federal Reserve minutes from the previous July meeting, which indicated policymakers' intent to increase interest rates in the near-term, unless inflationary pressures ease.

The USD Index traded at 98.75 on Wednesday, continuing the bearish trend following Wednesday's sharp decline. Momentum indicators were in bearish territory, although the Relative Strength Index (14) had entered oversold levels in most timeframes, implying a potential consolidation or even a bullish correction. Prior to the current support at 98.75, there were no clear levels until the April-May trading range, around 97.65-97.80.

Upside attempts were expected to face resistance at the previous support area of 99.30 (August 16 lows) before Wednesday's high, near 99.70, and the top of the past two-week trading range, just above the psychological level of 100.00. The US Dollar is the world's most traded currency, accounting for more than 88% of all foreign exchange turnover, with an average of $6.6 trillion in transactions per day as of 2022.

The currency's value is primarily influenced by central bank monetary policy, specifically set by the Federal Reserve (Fed), which aims to achieve price stability and full employment. The Fed adjusts interest rates, raising them when inflation is high and lowering them when inflation is low or the unemployment rate is high. In extreme circumstances, the Fed can also print more currency and engage in quantitative easing (QE) to boost credit in a struggling financial system.

QE typically results in a weaker US Dollar. During the Great Financial Crisis in 2008, the Fed used QE to combat the credit crunch. Gold prices slipped modestly during Asian trading hours and traded under the $4,500 level. Despite being close to its highest level since early June, gold remained vulnerable due to geopolitical uncertainties.

Meanwhile, major cryptocurrencies such as Ripple, Solana, and Cardano maintained stability after experiencing a bullish rebound, driven by the positive impact of the US Treasury bond buyback plan.