WASHINGTON, August 24, 2026– The dollar dropped to three-month lows against the euro this week after the U.S. Treasury made an unexpected move by increasing its repurchase program of long-term government debt.
The dollar index, measuring the dollar against a basket of other currencies including the euro and yen, was near 98.8 to 98.9 while the euro rallied to a level of $1.1711, its highest level since mid-May. The British pound also rose to $1.3675, the highest level since February, while the Japanese yen rose to a level of 159 per dollar, following reports of a sharp increase in core inflation in Japan.
The reason for the change was that Secretary of the Treasury Scott Bessent announced the intention of the department to double the scale of its repurchase operations involving the purchase of 10- to 30-year Treasuries up to $4 billion. Such measures were aimed at stabilizing the bond market, which was affected by fears of an increase in the U.S. fiscal deficit and new issuance. Long-term yields had already risen during the previous week due to fiscal sustainability, geopolitical risks associated with the war with Iran, and uncertainties regarding the Fed policy.
Analysts said the Treasury’s attempt to hold down yields appeared to be shifting the burden of fiscal concerns onto the currency, with the dollar bearing the brunt of investor skepticism. “Bessent’s efforts to suppress U.S. yields haven’t done much for U.S. yields, but it’s undermined the dollar,” said Marc Chandler, chief market strategist at Bannockburn Global Forex. Some market participants described the reaction as a “debasement trade,” with gold and bitcoin rallying as investors sought alternatives to fiat currencies; bitcoin surged more than 6 per cent to above $72,000 before extending gains toward $79,000.
The timing of the announcement surprised many investors, who saw it as coming right after the Treasury’s quarterly funding statement and before an auction of 20-year bonds, thereby giving further impression that the department was experimenting on the patience of the markets in intervening. “The markets rightly conclude that if the Treasury is unwilling to allow the bond markets to carry the burden of these issues regarding the sustainability of fiscal and Fed policy, then the dollar must,” commented Shaun Osborne, Chief FX Strategist at Scotiabank.
Next, the focus shifts to Federal Reserve System leadership ahead of monetary policy discussions at the central bank’s annual Jackson Hole symposium. Officials caused consternation in the markets after the recent Federal Open Market Committee meeting when policy signals gave very little indication about how policymakers could react to continued price pressures, with meeting minutes indicating that some members were prepared to increase interest rates if inflation failed to trend towards 2 per cent. Futures markets for the federal funds rate suggest a probability of around 35-40 per cent for monetary adjustments in September and 67-72 per cent in December.
