Treasury Buyback Operations Underpin Soft-Dollar Trading Environment
The US Treasury's bond buyback operations have continued to influence currency markets this week, leading to a soft-dollar environment. As a result, sterling has held steady while the euro consolidated near a key resistance level.
ING's Global Head of Markets Chris Turner argued that Wednesday's unscheduled US Treasury announcement was primarily a signalling exercise, aimed at addressing higher longer-dated Treasury yields. He noted that this is distinct from April 2025's Liberation Day episode, when policy credibility fears drove safe-haven flows into other currencies.
The soft-dollar narrative has been further supported by UBS strategists Constantin Bolz and Dominic Schnider, who pointed out that long-dollar positioning remains vulnerable to a reversal due to the fading case for further Fed tightening. They also noted that if rate hikes are fully removed from market pricing, existing long-dollar positions could be unwound.