Dollar Debasement Fears Grow as US Policy Intervention Weighs on Greenback
The US Dollar has weakened against most major currencies in August, sparking concerns about dollar debasement. The latest bout of weakness is being seen as more significant than a routine adjustment in Federal Reserve expectations.
Washington's intervention in the Treasury market has been a key catalyst for the decline. The US Treasury doubled long-dated bond buybacks to at least $4bn per operation last week, driving the Dollar lower and boosting gold and Bitcoin.
ING argues that most paths lead to a weaker dollar, citing US fiscal policy, renewed trade friction, and uncertainty around the Treasury market. However, MUFG cautions against assuming a prolonged Dollar collapse, pointing out that similar episodes in the past did not precede persistent USD weakness.
The broader market narrative remains centred on US fiscal concerns, Treasury buybacks, and the prospect of 'USD debasement'. MUFG's historical study found that similar episodes generally did not precede a prolonged Dollar collapse. However, if Treasury yields start falling while the Dollar and confidence in US policy weaken at the same time, the signal becomes much more bearish.