Dollar at three-month low as Treasury moves to soothe bond jitters

Washington, August 20 - The U.S. dollar experienced a modest recovery on Thursday as traders assessed if Treasury Department measures to contain longer-term yields would be effective. The Treasury Department had announced on Wednesday plans to double buybacks of 10- to 30-year debt, aiming for at least $4 billion per operation, to stabilize a market shaken by worries over the growing U.S. fiscal deficit.

This move prompted a sharp drop in the U.S. currency, as traders feared that even though long-term yields might rise, the fiscal deficit concerns would weaken the dollar. The Treasury's latest efforts, however, were met with skepticism on Thursday, with yields climbing again, according to Sarah Ying, head of FX strategy at CIBC Capital Markets.

Treasury Secretary Scott Bessent's move seemed to be a test of market reaction, but the market appeared to find the announcement unconvincing, at least for now. Bessent suggested he might further increase the volume of Treasury bonds the government purchases, stating that yields do not accurately reflect the underlying fundamentals.

The dollar index, which tracks the greenback against a basket of currencies like the yen and euro, climbed 0.06 percent to 98.89, while the euro dropped 0.01 percent to $1.1676. The single currency had peaked at $1.171 on May 14. Meanwhile, the Japanese yen weakened 0.6 percent against the dollar to 159.12 per dollar, marking the second time in recent weeks that Bessent intervened in currency markets to counter market moves.

The timing of Wednesday's announcement, following the Treasury's quarterly refunding statement and before a 20-year bond auction, raised eyebrows among investors, who believed the Treasury's actions were necessary to prevent bond markets from being overwhelmed by concerns about fiscal policy sustainability and Fed policy credibility.

Traders are also keeping an eye on Federal Reserve Chairman Kevin Warsh's upcoming speech at the central bank's Jackson Hole symposium, where he will offer insights into how he plans to address persistent inflation. Recent minutes from the Fed's July meeting revealed deepening concerns about inflation, with several policymakers ready to raise interest rates if inflation fails to drop toward the central bank's 2% target. In cryptocurrency markets, bitcoin surged 5 percent to $72,524.54, its highest level since June 1.