The U.S. dollar weakened on Thursday, extending losses and trading close to multi-month lows. The decline came after intervention from the U.S. Treasury helped stabilize the bond market and reduced the yield advantage that had previously supported the greenback.
The Dollar Spot Index slipped around 0.13% to near 98.80. This followed a 0.8% decline in the previous session, which pushed the index to its lowest level since May 14.
Treasury Intervention Calms Bond Market Turmoil
The dollar’s weakness followed an extremely volatile week in global bond markets.
On Tuesday, rising tensions linked to the Persian Gulf conflict and a surge in crude oil prices pushed global bond yields sharply higher. The 30-year U.S. Treasury yield reached 5.337%, marking its highest level in 19 years.
The rapid increase in borrowing costs weighed heavily on risk assets and unsettled financial markets worldwide.
However, conditions improved after the U.S. Treasury intervened on Wednesday. Officials doubled the limit for long-term Treasury buybacks from $2 billion to at least $4 billion.
The expanded programme helped support long-duration Treasury prices. As a result, the 30-year yield retreated toward 5.18%.
The move also encouraged traders to unwind bullish U.S. dollar positions that had benefited from the earlier surge in yields.
Investors Welcome U.S. Treasury Support
ING analysts said investors responded positively to the Treasury’s intervention.
However, they also warned that stronger long-term measures may be needed to achieve lasting stability in the bond market. In particular, fiscal consolidation could be necessary to address the underlying pressure on long-term borrowing costs.
Still, investors welcomed signs that the Treasury is paying closer attention to conditions at the longer end of the yield curve.
Euro and Pound Reach Multi-Month Highs
As U.S. yields declined and global risk sentiment improved, major European currencies gained ground against the dollar.
The euro rose around 0.2%, reaching its highest level since May 14. Traders continued to assess persistent inflation in the eurozone and the possibility of an interest rate increase from the European Central Bank next month.
The British pound gained roughly 0.3%, climbing to its strongest level since May 11. Firm UK government bond yields helped support sterling.
Japanese Yen Holds Recent Gains
The Japanese yen was relatively stable, strengthening around 0.1% to trade near 158.43 per dollar.
The currency retained most of the gains from its roughly 1% rally in the previous session.
Expectations that the Bank of Japan could tighten monetary policy further continued to support the yen. Recent U.S.-Japan currency stabilization measures also remained in focus.
Emerging Market Currencies Find Relief
Several emerging market currencies also benefited from the decline in U.S. yields.
The Indian rupee strengthened slightly, ending a five-session losing streak.
Meanwhile, the South Korean won stabilized near 1,320 per dollar after gaining around 1.8% during the previous session.
Lower U.S. yields offered some relief after emerging market currencies had recently faced selling pressure from rising global borrowing costs.
Hawkish Fed Minutes Limit Dollar Losses
Despite the broader decline in the U.S. dollar, foreign exchange traders remain cautious.
Minutes from the Federal Reserve’s July meeting showed that policymakers were still concerned about persistent inflation.
Several officials indicated that additional interest rate increases could remain an option if inflation stays above the Fed’s 2% target.
The hawkish message has reduced expectations for aggressive monetary policy easing later in the year. As a result, short-term U.S. yields continue to provide some underlying support for the dollar.
Oil Prices Add to Inflation Concerns
Geopolitical risks are also limiting appetite for riskier assets.
Brent crude remained near $92 per barrel as commercial shipping through the Strait of Hormuz continued to face significant restrictions amid tensions in the Middle East.
Elevated energy prices could create additional inflation pressure, particularly for oil-importing economies across Europe and Asia.
Markets Turn to Jackson Hole for the Next Signal
With Treasury intervention stabilizing the bond market but inflation and geopolitical risks still elevated, traders are looking for the next major catalyst.
Attention is now shifting toward Federal Reserve Chair Kevin Warsh’s upcoming Jackson Hole speech, which could provide fresh guidance on the outlook for U.S. interest rates and the dollar.
For now, easing long-term Treasury yields have taken some support away from the greenback. However, persistent inflation risks and a cautious Federal Reserve could prevent a deeper decline.
