The US dollar weakened on Friday and was on track for a weekly decline as investors remained sceptical that the government’s Treasury bond buyback programme would provide more than a temporary solution to rising borrowing costs.
The dollar’s weakness came as concerns grew over the United States’ deteriorating fiscal position and the increasingly interventionist approach of policymakers to financial markets.
US Treasury Secretary Scott Bessent said on Thursday that the government could further increase its repurchases of US Treasury securities.
The comments came a day after the Treasury Department announced plans to double the size of its buyback operations for longer-dated securities over the next quarter to at least $4 billion, in an effort to contain a sharp rise in bond yields.
Bessent also said he and White House budget director Russell Vought would begin a new fiscal consolidation effort at the direction of President Donald Trump.
The measures, however, did little to halt the sell-off in US government bonds.
The dollar subsequently came under pressure as investors questioned whether Treasury buybacks could address concerns that increasingly centre on the country’s fiscal outlook rather than technical issues in the bond market.
The euro was trading near a three-month high at $1.1693 and was on track for a weekly gain of about 1%.
Sterling also approached a six-month high, rising 0.08% to $1.3643 and taking its weekly gain to 0.8%.
The US dollar index, which measures the greenback against a basket of six major currencies, was down about 0.9% for the week at 98.76, leaving it near a three-month low.
Carol Kong, a currency strategist at Commonwealth Bank of Australia, said the Treasury’s long-term bond buybacks represented another example of the US government using unconventional measures to manage borrowing costs.
She said the move came against a backdrop of high government debt, widening fiscal deficits and policy uncertainty, potentially creating another headwind for sentiment towards US dollar assets.
Kong said the developments could encourage investors to increase their dollar hedging and diversify their portfolios away from US assets.
Other currencies also strengthened against the dollar.
The Australian dollar climbed to a 2½-month high of $0.71445, while the New Zealand dollar reached $0.59735, its highest level since June 1.
The Japanese yen was relatively stable at 159.01 per dollar.
Japan’s core consumer inflation accelerated in July from a year earlier, according to data released on Friday, strengthening expectations that the Bank of Japan could raise interest rates.
Meanwhile, US Treasury yields remained elevated despite the government’s buyback plans.
The yield on the 30-year US Treasury note rose about 1.4 basis points to 5.2508% on Friday.
The benchmark 10-year yield steadied at 4.7041% after rising 4.5 basis points on Thursday, as the initial relief generated by the Treasury’s buyback announcement faded.
Goldman Sachs strategist Vitali Meschoulam said investors were sceptical that policymakers could provide a lasting solution through measures aimed at influencing the long end of the Treasury market.
According to Meschoulam, the central issue increasingly appeared to be fiscal rather than technical.
He noted that while policymakers could temporarily compress term premiums, attempts to suppress yields become increasingly difficult once markets begin focusing on sovereign financing dynamics.
Concerns over the size of US government debt have also encouraged investors to consider alternatives to US assets.
US government debt has surpassed $40 trillion, increasing concerns about the country’s long-term fiscal sustainability.
Gold and bitcoin have benefited from some of the diversification flows as investors seek assets that are less directly exposed to US government finances.
Bitcoin climbed to a more than two-month high on Friday, rising 3.65% to $75,306.50.
The cryptocurrency was on track for a weekly gain of about 19%, which would be its strongest weekly performance in roughly two and a half years.
Spot gold was also heading for a weekly gain of more than 3%, reflecting stronger demand for alternative assets as concerns over US fiscal policy and the dollar outlook intensified.
The market reaction suggests that investors are increasingly looking beyond short-term Treasury interventions and focusing on the broader question of whether the United States can stabilise its debt and deficit trajectory without undermining confidence in its financial assets.
