US Dollar Falters Under Pressure from Bond Market and Hawkish Fed Comments

The US Dollar (USD) has been under pressure in recent days due to the actions of the US Treasury and cautious comments from Federal Reserve officials.

In a move aimed at improving market liquidity, the US Treasury announced that it would buy back larger amounts of older, less-liquid long-dated government bonds. This decision was seen as a bond-market band-aid, with some analysts warning against confusing it with quantitative easing.

The announcement came on Wednesday and led to a decline in the USD, which breached below the 99.00 support level and extended its move to the vicinity of the 98.50 zone for the first time since mid-May.

Fed officials Mary Daly (San Francisco) and Alberto Musalem (St Louis) offered different emphases on Thursday, with both agreeing that inflation remains above target and policy must remain focused on restoring price stability.

Musalem struck a hawkish tone, arguing that underlying inflation remains between 2.5% and 3% and is still too high. Daly was more measured, saying that recent jobs and inflation data had not materially changed her outlook.