Dollar Stabilizes After Treasury Buyback Decision

The US dollar has largely shrugged off the Treasury's buyback decision, according to Geoff Yu of BNY. He notes that US cross-border exposures have stabilized, with dollar FX hedges remaining broadly unchanged and US equity holdings recovering as risk sentiment improves.

Yu argues that the July Fed decision had a more significant impact on foreign exchange markets than the Treasury's buyback announcement. The Fed's continued anchoring of short-term interest rates has made FX sensitivities less relevant, in his view.

The market's reaction to the Treasury's buyback decision was similar to any policy move that causes a drop in US real rates, Yu says. However, he emphasizes that this impact is marginal and limited to the initial announcement.