US Dollar at Risk of Weakening as Treasury-Yield Clash Looms

The US dollar is facing a potential threat as the Treasury Department attempts to lower Treasury yields. This move could weaken the greenback, much like Japan's experience in 2025-2026 when attempts to control bond yields led to a significant decline in the yen.

According to Scott Bessent, the Treasury has tools to push Treasury yields lower, and long-term bond buybacks could exceed $4 billion. The bond market has become detached from fundamentals, and the Treasury intends to bring it back into line with reality.

The Fed's balance-sheet reduction is in contrast to the Treasury's measures, which resemble quantitative easing. This clash between the government and central bank may erode confidence in the Fed and ultimately weaken the US dollar.