The dollar faced instability and appeared poised for a weekly decline on Friday, as investors regarded the U.S. Treasury’s bond buyback strategy as a mere short-term solution, while also expressing renewed apprehension regarding officials’ increasingly interventionist stance. U.S. Treasury Secretary Scott Bessent indicated overnight that he may further augment the government’s repurchases of Treasuries. This statement follows the department’s announcement that it would double the size of buybacks on longer-dated securities over the next quarter, aiming to mitigate a significant increase in yields. Bessent also stated that he and White House budget director Russell Vought will be initiating a new fiscal consolidation effort under the direction of U.S. President Donald Trump. The moves, however, did little to stem the selloff in U.S. Treasuries and weighed on the dollar, as investors grew wary of the deteriorating fiscal picture and worries about the credibility of U.S. institutions resurfaced.

Against a weaker dollar, the euro was positioned close to a three-month high and was last valued at $1.1685, indicating a potential weekly increase of 1%. Sterling flirted with a six-month peak, edging 0.08% higher to $1.3643, thereby accumulating gains of 0.8% for the week thus far. The greenback was meanwhile on track for a weekly fall of more than 0.8% and was last at 98.82, languishing near a three-month low against a basket of six other currencies. “The Treasury’s long bond buybacks are basically another example of the U.S. government using unconventional tools to manage borrowing costs, and this comes ​against the backdrop of high government debt, growing fiscal deficits and policy uncertainty,” said Carol Kong. “So ​I can understand why people are concerned about the operation being another headwind to investor sentiment around U.S. dollar assets. Potentially we could see such an action ‌encourage more ⁠dollar hedging and diversification.”

In other currencies, the Australian dollar advanced 0.13% to $0.7123, while the New Zealand dollar added 0.23% to $0.5957 and was headed for a weekly rise of more than 1%. The yen slipped 0.05% to 159.12 per dollar, continuing to face pressure from the significant U.S.-Japan rate differentials. Data released on Friday indicated that Japan’s core consumer inflation experienced an acceleration in July compared to the previous year, strengthening the argument for a potential rate hike by the central bank. The yield on the 30-year U.S. Treasury note increased by approximately 1.4 basis points to 5.2508% on Friday, while the benchmark 10-year yield remained stable at 4.7041% after a rise of 4.5 basis points overnight, as the initial relief from Bessent’s bond buyback plan diminished.

“Our scepticism is not that policymakers lack the tools to influence ​the long end. History shows they do, at least temporarily. Our scepticism is that today’s problem appears ​increasingly fiscal rather than ⁠technical,” said Vitali Meschoulam in a client note. “The (developed market) examples tell us that term premia can be compressed. The (emerging market) examples tell us that once markets focus on sovereign financing dynamics, yield suppression becomes progressively less effective.” Concerns regarding the escalating U.S. debt, now exceeding $40 trillion, have prompted certain investors to seek alternatives like gold and bitcoin, which have historically gained from strategies aimed at diversifying away from U.S. assets.