DXY Declines Below 99 as US Fiscal Concerns Weigh on Currency

The US Dollar Index (DXY) has softened below 99.00 due to concerns over the US fiscal policy, with traders focused on whether the government's efforts to suppress long-term yields will have a negative impact on the currency.

US Treasury Secretary Scott Bessent's announcement of doubling the buyback of long-end bonds has led to a decline in the DXY to near three-month lows. The current policy mix is leaving the currency exposed to fiscal concerns, with strategists at Scotiabank arguing that efforts to suppress long-term yields will have a negative burden on the USD.

The market's reaction to Bessent's announcement has been mixed, with some analysts warning that the Fed's actions may not be enough to cap surging 30-year yields. The recent US inflation data show signs of easing, but some Fed officials are still concerned about price pressures. As a result, markets are pricing a 41.0% chance of a Fed rate hike at the upcoming policy meeting.