The Dollar Index takes its orders from the Treasury
A currency whose central bank has held five times, prices no cut this year and still carries an increase by December should not be sitting at the bottom of its three-month range.
The Dollar Index, a measure of the US dollar's strength against other major currencies, has been trading near 99.00, up 0.15% and 2.8% below its June peak. It trades beneath a 200-day Exponential Moving Average (EMA) of 99.50 and a 50-day moving average on the 100.00 handle. The Fed's move to double the ceiling on its long-end bond buybacks, announced in mid-August, has caused the index to lose its 200-day EMA, a key support level, and it has not traded back above this line since.
The Treasury General Account (TGA), which can fund these bond purchases, holds nearly 950 billion dollars, a significant increase from the 550 to 600 billion dollar working level of the previous administration. The Treasury's actions have a significant impact on Dollar liquidity, as each dollar leaving the TGA enters the banking system as reserves.
This fiscal easing operation reduces the average maturity of the borrowing and reprices a greater share of debt at the policy rate, leading to falling US yields and a firmer Dollar, which contradicts the typical rate-differential model.
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