WASHINGTON, D.C. / RankWire.AI / – On Thursday, the U.S. dollar hovered close to a three-month nadir as yields on long-term Treasuries declined. The dollar index was at 98.813 against a basket of six major currencies, nearing its weakest point since mid-May. Meanwhile, the euro appreciated to $1.1676, its highest since late May. Currency markets also evaluated recent measures by the Federal Reserve’s and reviewed minutes from the central bank’s latest policy session.
The Treasury Department announced plans on Wednesday to expand liquidity-support buybacks for longer-term government bonds, aiming to at least double the maximum size of operations from $2 billion to $4 billion. This adjustment applies to nominal coupon securities across the 10-year to 20-year and 20-year to 30-year segments. These larger buybacks will commence on September 9 and continue through November 4, concluding the current quarterly refunding period.
Following the Treasury’s announcement, yields on long-term U.S. government bonds declined. The 30-year Treasury yield was approximately 5.184% on Thursday, after experiencing a sharp decrease from earlier this week when it hit 5.337%, its highest since 2007. Movements in Treasury yields influence borrowing costs across financial markets and can impact the demand for the dollar. The Treasury Department indicated that an updated tentative schedule for its buyback operations will be issued later.
Weakening dollar boosts major currencies
The decline in the dollar supported several key currencies during Asian trading hours. The Japanese yen gained to around 158.45 per dollar after recently approaching the significant 160 mark. The British pound traded near $1.3604, close to a three-month high. The Swiss franc exchanged around 0.7999 per dollar, and the euro stayed above $1.16 as the dollar index stayed below 99. These movements followed a broader drop in the U.S. currency in the previous session.
Minutes from the Federal Reserve’s July 28-29 meeting, released Wednesday, revealed ongoing concerns about inflation. The Federal Open Market Committee maintained its benchmark federal funds rate between 3.5% and 3.75%, with nine members supporting the unchanged range and three favoring a quarter-point hike. Officials noted that inflation remains elevated compared to the Fed’s 2% target, even as U.S. economic activity continues expanding at a solid rate.
Inflation remains key focus in Fed minutes
The minutes indicated several policymakers were ready to raise interest rates in July and that higher borrowing costs could be necessary if inflation failed to move toward the 2% goal. The Fed continued its policy of maintaining ample reserves in the banking system and rolling over principal payments from Treasury holdings at auction. The next scheduled central bank’s policy meeting will be held on September 15 and 16.
Thursday’s dollar trading reflected the combined effects of lower long-term Treasury yields and the latest signals from U.S. monetary policy. The dollar index stayed near its three-month lows, while the 30-year yield remained below the 19-year high recorded earlier this week. The upcoming expanded Treasury buybacks and the Fed’s decision to keep rates unchanged continue to drive current trading dynamics for the U.S. dollar and government bonds.