United States Dollar Index falls as US Treasury doubles long-dated debt buybacks

The US Dollar Index (DXY) comes under fresh selling pressure on Wednesday as longer-term US Treasury yields fall sharply following the Treasury Department’s decision to expand its buyback operations.

At the time of writing, the index, which tracks the Greenback's value against a basket of six major currencies, trades around 98.86, its lowest level since late May, and is down 0.80% on the day.

The US Treasury said it will at least double the maximum size of its liquidity-support buybacks for longer-dated government securities. Purchases in the 10-to-20-year and 20-to-30-year maturity sectors will increase from $2 billion to at least $4 billion per operation.

Following the announcement, long-dated Treasury bonds rise, pushing yields sharply lower. The benchmark 10-year yield trades around 4.64%, down more than 5 basis points, while the 30-year yield falls nearly 9 basis points to 5.19%. The 30-year yield climbed above 5.30% on Tuesday, its highest level since 2007.

Falling Treasury yields reduce the relative appeal of US assets, adding to pressure on the Greenback, which was already weighed down by fading expectations of an imminent Federal Reserve (Fed) interest-rate hike following a string of weak US economic data in recent weeks.

However, uncertainty relating to the Fed’s monetary policy outlook persists, as the energy shock stemming from the war in the Middle East clouds the inflation outlook and prevents traders from ruling out a hike later this year.

Looking ahead, traders will closely watch the release of the minutes from the FOMC’s July meeting, due at 18:00 GMT.