Dollar slips to lowest since May as Treasury doubles bond buybacks, what’s next?
The dollar's slide to its weakest level since May reflects a shift in the rates backdrop rather than a single catalyst, with the Treasury's expanded buyback plan adding to pressure on medium and long-term yields already primed for lower Fed expectations. HSBC's framing suggests near-term price action will stay driven by incoming data and rate pricing rather than the structural concerns building beneath the surface, meaning a September Fed hold could extend the greenback's slide. On the other side, the euro has drawn support from a narrower short-term rate differential with the US, alongside firmer regional PMI readings, elevated oil prices and the prospect of a further ECB hike, a combination that leaves EURUSD positioned to extend gains if the Fed stays on the sidelines.
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Earlier:
- Gold rises to the highest since May 15 as dollar doom spreads
- Westpac says dollar's structural headwinds outweigh recent resilience, see EUR/USD and GBP/USD higher
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HSBC says falling US real yields and a narrowing rate gap with Europe are chipping away at its mildly bullish dollar call, with more weakness likely if the Fed stays on hold in September.
Summary:
- The dollar has fallen to its lowest level since May after the US Treasury said it would at least double long term bond buybacks
- HSBC said lower medium and long-term yields, higher inflation expectations and falling US real yields are challenging its mildly bullish dollar view
- The dollar index has declined around 2.5% since the July FOMC meeting
- HSBC still sees near-term dollar moves as mainly driven by economic data and rate expectations, despite growing structural concerns
- A narrowing US-eurozone two-year rate differential has supported EURUSD as markets pare back expectations for further Fed tightening
- Stronger eurozone PMI data, elevated oil prices and expectations of another ECB hike have also supported the euro, with HSBC flagging further USD weakness as likely if the Fed holds steady in September
The dollar has fallen to its lowest level since May after the US Treasury announced it would at least double long term bond buybacks, according to HSBC. The bank said the move has added to a backdrop of lower medium and long-term yields, higher inflation expectations and falling US real yields that is increasingly testing its mildly bullish dollar view.
HSBC noted that the dollar index has declined around 2.5% since the July Federal Reserve meeting, a slide it attributed largely to shifting rate expectations rather than a single event. Even as structural concerns around the currency build, the bank said near-term dollar moves remain primarily a function of economic data and rate pricing, meaning the greenback's trajectory in coming weeks will likely hinge on how incoming data shapes the path for Fed policy.
On the other side of the ledger, HSBC pointed to a narrowing two-year rate differential between the US and the eurozone as a key support for EURUSD, as markets scale back expectations for further Fed tightening. That dynamic has been reinforced by stronger eurozone PMI data, elevated oil prices and growing expectations of another rate hike from the European Central Bank, all of which have added to upward pressure on the single currency.
Looking ahead, HSBC's key takeaway is that falling US real yields and a narrowing short-term rate differential favour continued dollar weakness, particularly if the Fed confirms an extended pause at its September meeting. Should the Fed remain on hold, the bank sees scope for near-term dollar softness to persist, keeping the currency's direction closely tied to how the rate outlook on both sides of the Atlantic continues to evolve.
This article was written by Eamonn Sheridan at investinglive.com.提供 MainLink：Investinglive RSS Breaking News Feed
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