Dollar Falls to Three-Month Low Amid Treasury Buyback Concerns

The US dollar plummeted to a three-month low against the euro on August 21 due to concerns over the Treasury Department's bond-buyback program. The policy, aimed at supporting liquidity in longer-dated Treasury securities, instead raised questions about U.S. fiscal conditions and borrowing sustainability.

The euro rose to approximately $1.1685, near a three-month high, while the dollar index traded close to 98.82. This marked a weekly decline of over 0.8% for the dollar index.

Treasury Secretary Scott Bessent announced that the government would double the maximum size of liquidity-support buybacks for long-dated nominal Treasury securities, increasing operations from $2 billion to at least $4 billion per operation starting September 9.

Investors questioned the strategy's effectiveness in addressing underlying drivers of elevated yields, including large budget deficits and persistent inflation risk. The market's initial response was positive, with Treasury yields falling sharply on August 19, but this effect was brief as yields resumed their rise by August 20.