Treasury's Surprise Move Crushes Dollar

The US Treasury Department has announced it will double the size of its liquidity-support buybacks targeting long-term Treasuries, sending shockwaves through global currency markets. The move saw the dollar index drop as much as 0.7%, its steepest fall in three weeks, and push it to a three-month low.

The Treasury's decision to raise the per-operation cap on liquidity-support buybacks to $4 billion has provided support to the Treasury market amid growing concerns over rising long-term yields. Long-term bonds saw rapid buying following the announcement, with the 30-year yield briefly falling by about 8 basis points.

Market analysts have attributed the dollar's weakness to the Treasury's move, which was seen as a signal that it is aware of and seeking to alleviate ongoing selling pressure in the long end of the Treasury market. Jane Foley from Dutch bank noted that stabilization in the Treasury market has set the stage for dollar weakness.