US Treasury's Unconventional Moves Rattle ECB Officials

The recent Jackson Hole Economic Symposium has left European Central Bank officials uneasy and concerned about the future of global cooperation. The trigger for this unease is two surprise moves by the U.S. Treasury Department: selling euros on August 1 without advance notice, and planning to expand long-term Treasury buybacks to push down borrowing costs.

The sale of euros caught European officials off guard, as they had not been informed beforehand. The operation was part of a larger yen intervention aimed at supporting the Japanese currency. U.S. Treasury Secretary Scott Bessent explained that the foreign currency assets used for the purchase came from the Exchange Stabilization Fund (ESF).

The expansion of long-term Treasury buybacks also worries ECB officials, as it signals a government willing to take unconventional measures to push down borrowing costs. One source questioned what comes next: 'These interventions are usually just temporary relief, but they're clearly worried. What comes next? Will they pressure the Fed to start buying bonds in the market?'

European officials fear that political interference could extend to dollar swap lines, which provide dollar liquidity backstop to major global central banks. One source warned: 'But this administration isn't always rational. When they're pursuing retaliatory trade policies against their closest allies, Trump could say 'they're ripping us off,' and the swap lines could disappear overnight.'