WASHINGTON, D.C. / RankWire.AI / – On Thursday, the U.S. dollar hovered close to a three-month low as yields on long-term Treasury bonds declined. The dollar index was at 98.813 against a basket of six major currencies, nearing its weakest point since mid-May. Meanwhile, the euro increased to $1.1676, reaching its highest level since late May. Currency markets also evaluated new U.S. Treasury measures and the minutes from the Federal Reserve’s latest policy meeting.
The Treasury Department announced plans on Wednesday to increase liquidity-support buybacks for longer-dated government securities. The maximum size of eligible operations will at least double from $2 billion to $4 billion. This applies to nominal coupon securities in the 10-year to 20-year and 20-year to 30-year sectors. These larger buybacks will start on September 9 and continue through November 4, the close of the current quarterly refunding period.
Following the Treasury’s announcement, long-term U.S. bond yields declined. The 30-year Treasury yield was approximately 5.184% on Thursday, after a sharp drop in the prior session. Earlier this week, it hit 5.337%, the highest since 2007. Yields on Treasury bonds influence borrowing costs across markets and can impact the demand for the dollar. The Treasury Department indicated that an updated schedule for the buyback operations will be issued later.
Weakening dollar boosts major currencies
The declining dollar supported several prominent currencies in Asian markets. The Japanese yen gained to around 158.45 per dollar after recently nearing the key 160 level. The British pound traded near $1.3604, close to a three-month high. The Swiss franc moved near 0.7999 per dollar. The euro also stayed above $1.16 as the dollar index stayed below 99. These movements followed a broader dollar decline in the previous session.
Minutes from the Federal Reserve’s July 28 and 29 meeting showed ongoing concern about inflation. The Federal Open Market Committee kept its benchmark federal funds rate between 3.5% and 3.75%. Nine members supported holding the rate steady, while three preferred a quarter-point hike. Officials noted that inflation remains above the Fed’s 2% target, even as U.S. economic activity continues to grow solidly.
Fed minutes highlight inflation concerns
The minutes revealed many policymakers were ready to raise interest rates in July. Several indicated higher borrowing costs could be necessary if inflation did not move toward the 2% goal. The Fed maintained its policy of holding ample reserves in the banking system. It also continued rolling over principal payments from Treasury holdings at auction. The central bank’s upcoming policy meeting will take place on September 15 and 16.
Thursday’s dollar trading reflected the combination of declining long-term Treasury yields and recent U.S. monetary policy signals. The dollar index stayed near its lowest point in about three months. Meanwhile, the 30-year yield remained below the 19-year high reached earlier this week. The Treasury’s expanded buybacks will begin next month, while the Federal Reserve has left its policy rate unchanged. These developments continue to influence trading in the U.S. dollar and government bonds.