The U.S. dollar index dropped to approximately 98.80 on Thursday, marking its weakest position since the end of May. The decline followed intervention by the U.S. Treasury Department aimed at stabilizing turbulent fixed-income markets.
Fixed-income markets experienced intense selling pressure amid concerns over growing federal debt levels and elevated crude oil costs linked to escalating tensions between the United States, Israel, and Iran. Earlier in the week, yields on 30-year government bonds reached 5.337%, a level not seen since 2006.
Treasury Expands Debt Repurchase Strategy
In response to the market turbulence, Treasury officials announced plans on Wednesday to at least double bond repurchase operations for extended-maturity bonds, increasing the maximum to $4 billion per session from the previous $2 billion threshold. The initiative specifically targets securities with maturities of 10 years or longer.
Following the disclosure, the 30-year yield retreated to approximately 5.18%, providing about 9 basis points of relief, while the 10-year yield experienced a similar decline. Market strategists noted that the strategy directs government financing toward shorter-duration bills while repurchasing longer-maturity obligations, alleviating strain on extended-term yields without requiring Federal Reserve balance sheet expansion.
Global Currency Movements and Federal Reserve Outlook
The dollar's broad weakness provided temporary relief for the Japanese yen, which settled near 158.55 after approaching the critical 160 per dollar threshold. Meanwhile, the euro surged to $1.1674, achieving its strongest position since late May, and the British pound appreciated to $1.3614.
At the same time, oil prices rebounded toward $92 per barrel as expectations for a swift diplomatic resolution between the U.S. and Iran diminished. Minutes from the July Federal Reserve meeting indicated that policymakers continue to monitor inflation closely and have not ruled out additional tightening if price growth fails to converge toward the 2% objective.
