US Dollar Weakens Amid Government Intervention and Fears Over Fiscal Deficit

The US dollar has weakened to a three-month low due to intervention by the US Government in their own Treasury Bond market, as well as continuing weak US economic data that reduces the probability of Fed interest rate hikes. The USD Dixy Currency Index has decreased 2.60% to 98.77 since its high on July 27 when oil prices started increasing again. This unexpected move is unusual because it occurred while US long-term Treasury Bond yields were rising, breaking a previous correlation where the USD appreciated with increasing bond yields.

The US Government's intervention in their own bond market is seen as an attempt to lower long-term interest rates and prevent borrowing costs from increasing for new mortgages. Higher 10-year Treasury Bond yields at 4.74% increase the cost of capital equations that are used to value companies on the stock exchange, which could lead to a plummeting equities market ahead of the mid-term elections. The US Government's $40 trillion debt mountain is now costing them $1.7 trillion in interest costs each year.

Treasury Secretary Scott Bessant announced the bond buyback plan to commence in early September, but markets are highly skeptical about its success and yields have reversed back up to 4.74%. The bond markets are rattled by growing concerns over the size of the US fiscal deficit, with President Trump's musings about tax reductions and the cost of the Iran war adding to the worries.