US Dollar: Yield management weighs on currency – BBH

The US Dollar (USD) has been experiencing weakness against major currencies as US Treasury yields have decreased in the longer term following announcements of buyback plans. Elias Haddad from Brown Brothers Harriman (BBH) suggests that the expanded buybacks and fiscal messaging may temporarily limit long-end yields, but at the expense of the USD's credibility.

Upcoming US August PMI data will be crucial in determining whether the US growth advantage still provides short-term support for the USD. The USD has declined against all major currencies, global stocks and bonds have increased, while the recent rally in crude oil prices has stalled. Treasury yields have slightly decreased, with 30-year yields being modestly below the levels seen after the buyback announcement on Wednesday.

Treasury Secretary Scott Bessent has indicated that the buyback operation could be larger than initially announced, with a "big toolkit" at his disposal to address the Treasury market. However, the White House's announcement of increased focus on fiscal consolidation later in the week may come with credibility costs, similar to putting lipstick on a pig without significant spending cuts or revenue increases.

Despite the Treasury's intervention to boost buyback operations, it may blur the lines between improving market functioning and suppressing borrowing costs to contain fiscal stress. The US August PMI will provide insights into whether the US growth edge remains intact, as a stronger data point could offer the USD some near-term support, while weaker growth signals may deepen its losses.