Dollar Stays Near Three-Month Low as Treasury Steps In to Calm Bond Market

The U.S. dollar remained subdued on Thursday, trading close to its weakest level in three months, as investors weighed the Treasury Department's latest effort to stabilise the bond market. The dollar index, which tracks the currency against six major peers, stood at 98.938, near its lowest point since mid-May.

The euro held firm at $1.1676, its strongest since late May, while sterling traded at $1.3603. The Japanese yen was at 158.32 per dollar, retreating from the closely watched 160 level after giving back gains from late-July intervention. The Swiss franc hovered near a two-month high at 0.7981 per dollar.

The Treasury's move came after a sharp selloff pushed the 30-year yield to a 19-year high of 5.337%. Following the announcement, the yield dropped 9 basis points to 5.184%.

Analysts said the plan to double liquidity support buybacks for longer-dated bonds effectively removes duration from the market while shifting issuance toward short-term bills. Tony Sycamore, market analyst at IG, noted this puts downward pressure on long-term yields without expanding the Federal Reserve's balance sheet. "It is not formal QE and not yield curve control, but it is a clear signal that Washington is prepared to lean against rising term premia," he said.

Brian Jacobsen, chief economic strategist at Annex Wealth Management, called the move a temporary salve, adding that it reflects an era of fiscal dominance. "The Fed is impotent in affecting long-term rates. Now the Treasury is going to issue more short-term debt because of weak demand for long term debt," he said.

Meanwhile, minutes from the Fed's last meeting showed deepening concern about inflation, with several policymakers ready to raise rates and many saying a hike would be needed if price pressures do not ease toward the 2% target.