The US Dollar remained close to a three-month low on Thursday after the US Treasury stepped in to ease pressure in the bond market. The move helped temper a selloff that had driven long-term Treasury yields to their highest levels since 2007, boosting risk appetite and weighing on the greenback.
The Dollar index, which tracks the currency against six major peers, stood at 98.723, its weakest level since 14th May. Meanwhile, the Euro climbed to $1.1692, hovering near its highest level since mid-May.
The Treasury’s decision to ramp up buybacks of 10- to 30-year Treasury securities should help reassure investors that longer-dated bonds are unlikely to experience a disorderly selloff, Reuters news agency reports.
It removes one of the more unexpected risks hanging over markets, supporting risk appetite and the broader investment climate while putting some downward pressure on the Dollar.
Investors have been dealing with a sharp selloff across global bond markets this week, driven by growing concerns over rising government debt and the risk of higher oil prices as efforts to end the US-Israeli conflict with Iran show little progress.
The 30-year Treasury yield climbed to a 19-year high of 5.337% earlier this week. It was last at 5.198%, down 9 basis points after the Treasury’s move effectively redirects a greater share of government borrowing toward short-term bills.
Broad-based weakness in the US Dollar offered some relief to the Japanese Yen, which moved further away from the closely watched 160-per-Dollar threshold. The Yen traded at 158.41 per Dollar, giving up some of its gains from the previous session.
The currency has remained under close scrutiny since US and Japanese authorities carried out a rare coordinated intervention at the end of July to stem its decline after it hit a 40-year low of around 164 per Dollar.
Sterling climbed to $1.3631, its strongest level in three months, while the Swiss Franc edged down to 0.7986 per Dollar after surging nearly 2% in the previous session.
Inflation concerns intensified at the Federal Reserve’s meeting last month, with several policymakers backing a potential rate hike and many warning that borrowing costs may need to rise if inflation fails to return to the central bank’s 2% target, according to the minutes.
The Fed’s July meeting minutes confirmed a more hawkish stance among policymakers compared with June. However, with inflation, labour market and economic activity data since then coming in relatively soft, there is little indication that further interest rate hikes are imminent.