Dollar wobbles as Treasury's bond market buybacks raise fresh concerns

The dollar experienced volatility on Friday due to concerns regarding the US Treasury's bond market buybacks, which may weaken confidence in the currency. This led to the euro gaining 0.21% against the dollar, reaching US$1.1703, and setting a potential new four-week high. The British pound also appreciated by 0.15% to US$1.3652, nearing its May high.

Treasury Secretary Scott Bessent hinted at further increases in the government's repurchase of Treasuries, following a surprise announcement to double the size of longer-dated debt buybacks aimed at curbing bond yields. However, some analysts argued that these efforts to control longer-term yields might simply shift pressure to other areas of the US markets, potentially burdening the currency.

Jonas Goltermann, Capital Economics' chief markets economist, expressed doubts about the dollar's rebound over the coming months, citing unconventional policy as a negative factor. The developments may complicate currency markets, already facing uncertainties such as the Iran war and interest rate trajectories. Investors will be closely watching Federal Reserve Chair Kevin Warsh's speech at the upcoming Jackson Hole Symposium, which could provide insights into central bankers' perspectives on the latest mix of data and Treasury moves.

Meanwhile, the dollar index dipped by about 0.94% for the week, nearing a three-month low at 98.65. The Japanese yen saw a 0.21% gain against the dollar to 158.72, after July data revealed core consumer inflation acceleration, supporting the Bank of Japan's potential rate hike. Authorities from the US and Japan have previously supported the yen through joint intervention, but investors suggest the currency could resume its decline if the Bank of Japan adopts a more symmetric policy focused on curbing inflation.