Dollar Tumbles as US Treasury Boosts Liquidity and Gold Prices Soar

The US dollar index (DXY) fell to a 2.5-month low on Wednesday, declining by -0.80%. This downtrend was largely attributed to the US Treasury's decision to boost liquidity and increase buybacks of long-dated bonds.

The Treasury announced that it would double the maximum size of its liquidity support buyback operations for longer-dated nominal coupon sizes to at least $4 billion per operation, effective September 9. This move was seen as a significant step in increasing market confidence and stability.

The dollar's interest rate differentials also weakened due to lower T-note yields on Wednesday. The Federal Reserve's federal funds rate target range of 3.50%-3.75% remains higher than the BOJ's current policy rate of 1.00%, further contributing to the dollar's decline.