Dollar Hits 3-Month Low vs Euro Amid US Fiscal Deficit Worries

The US dollar fell to a three-month low against the euro on Thursday due to concerns over the growing US fiscal deficit and potentially higher inflation. The Treasury Department's announcement that it would double the size of its buybacks of 10- to 30-year debt from USD2 billion per operation to at least USD4 billion per operation was intended to calm a bond market selloff, but it had an opposite effect.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, was last down 0.01% at 98.82, with the euro up 0.01% at USD1.1678. The single currency earlier reached its highest since May 14 at USD1.171.

Currency strategists Sarah Ying of CIBC Capital Markets and Shaun Osborne of Scotiabank were skeptical about the Treasury's move, stating that it may not be credible to the market. They pointed out that the timing of the announcement was unusual, coming soon after the Treasury's quarterly refunding statement earlier in August.

The market reaction to the Treasury's move was swift, with yields renewing their climb higher. Investors are now looking ahead to a speech from Federal Reserve Chairman Kevin Warsh at the central bank's Jackson Hole symposium later this month for clues on how he plans to tackle still-elevated inflation.