Forex▼ Bearish
US Treasury Buyback Expansion Sends Dollar Reeling
The Treasury's move to double buyback operations for longer-dated notes drove yields lower and the dollar to new lows. Euro rose above $1.17, its highest since May.
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The US Treasury announced it will at least double the size of liquidity support buyback operations for longer-dated nominal coupon securities, starting September 9. The current quarterly maximum is $16 billion. The move changed the tone across capital markets, driving long-term yields lower and fueling a broad equity recovery. The greenback slumped against nearly every major and emerging-market currency.
Traders said the signal effect outweighed the actual size relative to daily Treasury turnover. The announcement pushed the 10-year yield down about six basis points within minutes, and the 30-year yield followed. By the close, the 10-year yield stood at 4.67%, down sharply from levels seen earlier in the week.
The euro jumped 0.90% against the dollar on the session, its best day since late March. It settled near $1.1680 and extended gains above $1.17 in Asian trading for the first time since mid-May. The $1.17 area marks the halfway point of this year's range. The next retracement, the 61.8% level, sits just below $1.18, which also corresponds to the May highs. EUR/USD profile
Dollar-yen reacted in lockstep with the drop in US yields. The pair fell from around ¥159 before the announcement to almost ¥158, a seven-day low. That low matched the 38.2% retracement of the greenback's recovery from the intervention-inspired low on August 3 near ¥155.25. Options for $1.3 billion expire at ¥158 today. The dollar recovered to almost ¥158.75, where sellers emerged, before drifting back to ¥158.20 in the European morning.
Sterling surged to $1.3630, its best level since May 11, surpassing the 61.8% retracement of the decline from the January high near $1.3870. It approached the May highs around $1.3650-60 today, reaching almost $1.3650 where options for about GBP360 million expire.
The Canadian dollar gained on the three-day extension of US tariff threats and the broad dollar sell-off. The greenback fell from around CAD1.3880 to almost CAD1.38 after the Treasury announcement, then dropped further to CAD1.3760 in Asian trading, a new three-month low. Support is seen near CAD1.3700.
The Australian dollar underperformed before the announcement but recovered smartly to test Monday's two-month high near $0.7130, posting an outside up day. It has hardly traded higher today, but the market does not appear done. The next technical target is the $0.7175-$0.7200 area.