US Dollar: Risk-on pattern with softer DXY – ING

ING analyst Chris Turner points out that the U.S. Treasury's recent bond buyback operations and falling longer-dated yields have bolstered equities and put downward pressure on the U.S. Dollar. The July Federal Open Market Committee (FOMC) minutes did not express hawkish sentiments, contributing to the dollar's flat-to-lower trend while the U.S. Dollar Index (DXY) slipped below its recent range, allowing further downside potential.

While a $2 billion increase in buyback operations might appear to be shuffling deckchairs on the Titanic, given the staggering U.S. national debt of $40 trillion, the Treasury's unscheduled intervention was met with widespread investor approval. This unexpected move appears to signal the Treasury's dissatisfaction with the recent decline in long-term bond yields.

A more substantial structural solution, such as fiscal consolidation, is required for a sustainable bond market recovery, but the reassurance that the U.S. Treasury will be more cautious about long-term yields has been well-received. The drop in longer-dated U.S. yields by 10 basis points has lifted equities and caused the dollar to weaken, particularly against high-beta currencies like the Norwegian krone, New Zealand dollar, and Swedish krona.

The Bessent Put, a tool to monitor the U.S. Treasury market, mitigates one of the primary risks to risk assets this summer, potentially keeping carry trade strategies popular. Meanwhile, the July FOMC meeting minutes were not particularly hawkish, and short-dated U.S. yields actually fell by 5 basis points following the release.

Consequently, the dollar remains in a flat or lower position, fitting the risk-on, dollar-off investment environment. Notably, the DXY unexpectedly broke down from its 99.40-100.00 range, potentially drifting lower to 98.65, with the next significant level being 98.00 if risk assets experience another upward surge due to the more activist U.S. Treasury.

As investors reevaluate the impact of the U.S. Treasury buyback, attention now shifts towards U.S. data and Middle East headlines for additional trading opportunities. EUR/USD is consolidating below the 1.1700 level in European trading, with bulls waiting for a move beyond this mark before placing fresh bets as the U.S. Dollar stabilizes following the Treasury's bond buyback plan-led decline.

Jobless claims data, amid lingering Iran risks, will be closely monitored. Gold remains slightly down on the Asian session, trading below the $4,500 mark but nearing its highest level since early June. Altcoins such as Ripple, Solana, and Cardano are holding steady after a bullish rebound following U.S. Treasury bond buybacks. Technical outlooks for Ripple (XRP), Solana (SOL), and Cardano (ADA) suggest further upside, while ADA may lose recent gains. Ripple trades around $1.0951 after a 10% surge the previous day.