Dollar wobbles as Treasury’s bond market buybacks raise fresh concerns
By Niket Nishant and Rae Wee
Aug 21 (Reuters) – The dollar slipped on Friday and was set to end a bumpy week lower, as investors questioned whether the U.S. Treasury’s efforts to calm the bond markets might end up undermining confidence in the currency.
Those concerns pushed the euro up 0.21% to $1.1703, on course for its fourth consecutive weekly gain. The British pound was up 0.15% to $1.3652, holding close to its highest since May.
U.S. Treasury Secretary Scott Bessent said on Thursday he may increase the government’s repurchases of Treasuries further, a day after the department surprised markets with a pledge to double the size of buybacks of longer-dated debt to rein in bond yields.
But some argued that efforts to keep a lid on longer-term yields may only shift pressure elsewhere in U.S. markets, with the currency potentially bearing the brunt.
“When it comes to the dollar, even the hint of financial repression and more unconventional policy is unhelpful. We are becoming less convinced that the dollar will rebound as far as our current forecasts imply over the coming months,” said Jonas Goltermann, chief markets economist at Capital Economics.
The latest developments could further complicate the outlook for currency markets, where investors are already contending with a host of uncertainties, such as the Iran war and the path for interest rates.
They also set up a tense backdrop for the Federal Reserve’s Jackson Hole Symposium next week, where Chair Kevin Warsh’s speech will be scrutinised for clues on how central bankers view the latest mix of data and Treasury moves.
The dollar index, which measures the U.S. currency against a basket of six of its peers, was headed for a weekly fall of about 0.94% and was last at 98.65, languishing near a three-month low.
YEN FIRMS AFTER INFLATION
The Japanese yen rose 0.21% against the dollar to 158.72 after data showed core consumer inflation had accelerated in July, bolstering the case for a rate hike by the Bank of Japan.
U.S. and Japanese authorities propped up the yen through joint intervention last month, but investors say the Japanese currency could resume its decline unless the BOJ tightens policy.
“The yen is certainly salvageable, but it’s not a one-way train,” said Roosevelt Bowman, senior investment strategist at Bernstein Private Wealth.
“Given that growth and inflation have at least firmed somewhat in Japan, if the BOJ policy was seen as more symmetric, with the central bank pushing against any inflationary pressures, it would help the yen.”
Rate increases typically support a currency. The BOJ’s next policy meeting is on September 17 and 18.
(Reporting by Niket Nishant in Bengaluru and Rae Wee in Singapore; Editing by Sonali Paul, Lincoln Feast, Hugh Lawson and Alex Richardson)
