Dollar Slumps as Treasury Buyback Backfires

The US dollar hovered near multi-month lows on Monday as investors responded to Washington's attempt to stabilize the Treasury market. The move, intended to improve liquidity, instead sparked fears of a 'debasement trade' with the total federal debt now above $40 trillion and the annual deficit approaching $1.8 trillion.

According to Goldman Sachs analysts, the Treasury's technical adjustment has failed to contain the climb in long-end yields, which have been rising globally on solid economic growth, elevated inflation expectations, and anxiety over ballooning sovereign debt.

The dollar index edged up 0.12% to 98.88, but the modest gain did little to repair the damage from last week's 1% slide. The currency has been under sustained pressure since the Treasury announced it would at least double long-end bond buybacks to $4 billion per operation.