US Dollar Near Multi-Month Lows Amid Debt Concerns and Bessent Bond Buybacks

The US dollar index hovered near its weakest levels in months as investors digested the implications of Treasury Secretary Scott Bessent's decision to double the size of long-dated bond buyback operations to at least $4 billion per issue.

This move, announced earlier in the week, aimed to ease pressure on surging long-term Treasury yields that had climbed toward 19-year highs amid concerns over the US debt load exceeding $40 trillion and heavy corporate issuance for AI infrastructure.

Although the buybacks provided temporary relief, with 30-year yields pulling back slightly, the dollar absorbed much of the adjustment, falling nearly 0.8% against a basket of currencies in the immediate aftermath and remaining defensive into Monday.

Analysts noted that restraining yields through fiscal intervention risks shifting the burden onto the dollar, potentially fueling imported inflation and complicating the Federal Reserve's path. Gold and bitcoin surged in response, highlighting safe-haven flows away from the greenback.

The euro held steady around $1.168, while USD/JPY traded near 158.9, with positioning data showing reduced USD longs and renewed JPY shorts.

Traders should monitor upcoming US inflation data, Fed minutes, and any escalation in Middle East tensions tied to Iran sanctions, as these could dictate whether the dollar's weakness persists or reverses on hawkish policy signals.

The episode underscores how Treasury activism is increasingly influencing FX volatility beyond traditional monetary policy channels, with potential spillovers to risk assets and EM currencies sensitive to USD strength.