Dollar Selloff Continues as Investors Lose Faith in US Fiscal Management
The US dollar took a hit on Friday as investors viewed the Treasury's expanded bond buyback plan as a temporary fix rather than a durable solution to concerns over the country's fiscal trajectory. Treasury Secretary Scott Bessent signalled he may increase Treasury repurchases further, which only reinforced doubts about the credibility of the approach.
Bessent also announced that he and White House budget director Russell Vought would launch a new fiscal consolidation drive directed by President Trump. However, neither announcement did much to halt the selloff in Treasuries or support the dollar.
Against the weaker dollar, the euro traded near a three-month high and sterling approached a six-month peak. The New Zealand dollar was on course for a weekly rise of more than 1%, its strongest level since June 1. Meanwhile, the yen slipped slightly and remained under pressure from wide interest rate differentials between the US and Japan.
Goldman Sachs noted that policymakers have tools to influence long-end yields temporarily, but today's problem looks increasingly fiscal rather than technical in nature. As a result, yield suppression tends to become less effective once markets focus on sovereign financing dynamics.