Dollar hugs three-month lows as Treasury seeks to sooth the bond market

The US dollar experienced a significant drop on Thursday, settling close to its three-month lowest point as the US Treasury Department implemented measures aimed at stabilizing the bond market. The bond market had witnessed 30-year yields reaching their highest level since 2007, causing widespread concern among investors. The dollar index, which gauges the value of the US currency against six others, slumped to 98.938, marking its lowest level since mid-May.

The euro strengthened to $1.1676, its highest level since late May. In response to the severe bond selloff that pushed the 30-year Treasury yield to a 19-year high of 5.337%, the US Treasury announced plans to double liquidity support buyback operations targeting longer-dated bonds. Tony Sycamore, a market analyst at IG, noted that the Treasury was removing longer-duration bonds from circulation while simultaneously issuing more short-term bills, exerting downward pressure on long-term yields without the Federal Reserve expanding its balance sheet.

Brian Jacobsen, chief economic strategist at Annex Wealth Management, emphasized the move's temporary nature and highlighted how "we're in an era of fiscal dominance and modern monetization." He further explained that the Federal Reserve lacks the ability to influence long-term rates, and therefore, the Treasury will issue additional short-term debt due to weak demand for long-term debt.

The yen traded at 158.32 per dollar, moving away from the 160 level following an intervention by Japan. The British pound settled at $1.3603, while the Swiss franc was at 0.7981 per US dollar, nearing a two-month high.