Dollar wobbles as investors balk at US Treasury's rescue efforts

The dollar was on shaky ground and set for a weekly loss on Friday, as investors viewed the ​U.S. Treasury's bond buyback gambit as merely a ​temporary fix, while raising fresh concerns about officials' increasingly interventionist approach.

U.S. Treasury Secretary Scott Bessent said ​overnight he may further increase the government's repurchases of Treasuries, a day after the department announced it would double the size of buybacks on longer-dated securities over the next quarter in an attempt to stem a sharp rise in yields.

Bessent also said he and White House budget director Russell Vought will ‌be embarking on a ⁠new fiscal ⁠consolidation effort directed by 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 perched near a ​three-month high and last bought $1.1685, on track for a weekly rise of 1%.

Sterling flirted with a six-month peak and edged 0.08% higher to $1.3643, taking its gains for the week thus far to 0.8%.

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, a currency strategist at Commonwealth Bank of Australia.

"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 come under pressure from wide U.S.-Japan rate differentials.

Data on Friday showed Japan's core consumer inflation accelerated in July from a year earlier, bolstering the case for a rate hike from the central bank.

JUST A BAND-AID

The yield on ‌the 30-year U.S. Treasury note was up about 1.4 basis points to 5.2508% on Friday, while the benchmark 10-year yield steadied at 4.7041% after rising 4.5 bps overnight, as initial relief from Bessent's bond buyback ​plan faded.

"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 Goldman Sachs strategist 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 over the growing U.S. debt pile, which has topped $40 trillion, also drove some investors towards alternatives such as gold and bitcoin, which have benefitted in the past from efforts to diversify away from U.S. assets.

Bitcoin scaled an over two-month high on Friday and last traded 1.6% higher at $73,823.43, on track for a 17% weekly rise, which would mark its largest gain in 2-1/2 years.

Spot gold was similarly headed for a more than 3% jump this week. [GOL/]