Dollar Collapse Triggers EUR/USD Surge on Treasury Debt Repurchase Boost
The US Dollar (USD) experienced a significant collapse this week, leading to EUR/USD reaching a fresh three-month high just above 1.1700.
This unexpected boost to US liquidity was triggered by the Department of the Treasury's announcement that it will increase government debt repurchases by at least double, from $2 billion to $4 billion per operation, effective September 9.
While aimed at taming long-term bond yields, this move also signalled the Treasury's sensitivity to yield volatility. However, critics argue that buybacks merely rearrange the maturity schedule, as fresh bonds will be issued to replace those bought back, leaving government debt and fiscal deficits unchanged.
The decision has implications for the Federal Reserve's future monetary policy decisions, potentially easing financial conditions and increasing the odds of a tighter monetary policy. As precious metals are likely to outpace the Greenback in a risk-averse environment, further USD weakness is anticipated.