Dollar near three-month low on Treasury buyback worries

The U.S. dollar experienced a decline on Friday, reaching near a three-month low against the euro, as worries grew about the Treasury's expanded plan to buy back longer-dated government debt. Treasury Secretary Scott Bessent indicated on Thursday that the government might further increase its repurchases of Treasuries, following a surprise pledge to double the size of its buybacks of longer-dated debt to curb bond yields.

This move contributed to a surge in long-dated yields, with the 30-year yield hitting its highest level since 2007. Traders cited concerns over the weakening fiscal outlook, heavy issuance, geopolitical risks from the Iran conflict, and uncertainty surrounding the Federal Reserve's policy direction. Despite efforts to keep yields low, they have since risen again.

Marc Chandler, chief market strategist at Bannockburn Global Forex, noted that while Treasury's attempts to suppress U.S. yields have not succeeded, they have negatively impacted the dollar. The dollar index, which gauges the greenback against a basket of currencies including the yen and euro, fell 0.05% to 98.79, with the euro gaining 0.03% at $1.1682.

Sterling also strengthened by 0.04% to $1.3635. Bitcoin continued its upward trend, surging 6.06% to $77,060 after reaching a high of $79,455. The next potential gauge of whether Treasury yields will keep rising is Federal Reserve Chairman Kevin Warsh's speech at the central bank's Jackson Hole Symposium next Friday. Market expectations for a September rate hike have risen to 35% by September and 69% by December.

Meanwhile, the Japanese yen strengthened 0.14% to 158.82 per dollar after core consumer inflation accelerated in July, supporting the case for a Bank of Japan rate hike. The BOJ's next policy meeting is scheduled for September 17 and 18.