Dollar set for weekly loss as US debt concerns rise

The US dollar remained under pressure on Friday and was heading towards a weekly decline as investors questioned whether the US Treasury’s expanded bond-buyback programme would provide more than temporary relief to the

SINGAPORE: The US dollar remained under pressure on Friday and was heading towards a weekly decline as investors questioned whether the US Treasury’s expanded bond-buyback programme would provide more than temporary relief to the government debt market.

The latest move by US authorities has failed to fully reassure investors, with concerns over rising government debt, widening fiscal deficits and uncertainty surrounding economic policy continuing to weigh on sentiment towards US assets.

US Treasury Secretary Scott Bessent said on Thursday that the government could consider increasing its purchases of Treasury securities. His comments came a day after the Treasury announced plans to double the size of its buyback programme for longer-maturity bonds during the coming quarter.

The initiative is aimed at improving liquidity in the Treasury market and helping contain the sharp increase in longer-term borrowing costs. However, investors appeared unconvinced that bond purchases alone could address the broader concerns surrounding the US fiscal outlook.

Bessent also said he and White House budget director Russell Vought would begin a new fiscal consolidation drive under the direction of President Donald Trump. The effort is expected to focus on strengthening government finances at a time when markets are closely monitoring the trajectory of US debt and budget deficits.

Dollar remains under pressure

The dollar’s weakness was reflected across major currency markets. The euro was trading close to a three-month high at around $1.1685 and was on course for a weekly gain of approximately 1%.

Sterling also remained firm, rising 0.08% to $1.3643. The British currency was approaching a six-month high and had gained around 0.8% over the week.

Meanwhile, the US dollar index, which measures the greenback against six major currencies, was down more than 0.8% for the week. It stood at 98.82 on Friday, close to its lowest level in three months.

Carol Kong, a currency strategist at Commonwealth Bank of Australia, said the Treasury’s decision to buy longer-term bonds represented another unconventional attempt by the US government to influence borrowing costs.

She noted that the policy was being introduced against a backdrop of elevated government debt, persistent fiscal deficits and considerable uncertainty over economic policy. These factors, she said, could encourage investors to increase their currency hedging and diversify away from US dollar-denominated assets.

Treasury yields remain elevated

The bond market also showed limited signs of relief following the announcement.

The yield on the 30-year US Treasury bond increased by around 1.4 basis points to 5.2508% on Friday. Meanwhile, the benchmark 10-year Treasury yield was little changed at 4.7041%, following a rise of 4.5 basis points in the previous session.

The moves suggested that the initial optimism surrounding the buyback announcement had largely faded.

Goldman Sachs strategist Vitali Meschoulam said investors were not necessarily questioning the ability of policymakers to influence longer-term yields in the short run. Instead, the concern was that the underlying problem appeared increasingly linked to fiscal conditions rather than technical issues in the bond market.

According to the strategist, interventions can temporarily reduce term premiums, but their effectiveness may weaken when investors begin focusing more closely on a government’s ability to manage its debt and financing requirements.

Other major currencies

Elsewhere, the Australian dollar gained 0.13% to $0.7123, while the New Zealand dollar climbed 0.23% to $0.5957. The New Zealand currency was heading for a weekly increase of more than 1%.

The Japanese yen, however, remained under pressure, slipping 0.05% to 159.12 against the dollar.

The yen’s weakness has been closely linked to the significant interest-rate gap between the United States and Japan, which continues to encourage demand for dollar-denominated assets.

Fresh Japanese inflation data released on Friday showed that core consumer prices accelerated in July from a year earlier. The figures strengthened expectations that the Bank of Japan could consider raising interest rates, although the yen continued to face pressure in currency markets.

Investors turn to alternative assets

Growing concerns about the scale of US government borrowing have also encouraged some investors to look beyond traditional US assets.

US government debt has surpassed the $40 trillion mark, increasing scrutiny of Washington’s fiscal position and raising questions over the long-term sustainability of borrowing.

Gold and bitcoin have benefited from this environment as some investors seek assets that can provide diversification away from the dollar and US government securities.

Bitcoin was particularly strong on Friday, climbing 1.6% to $73,823.43. The cryptocurrency reached its highest level in more than two months and was heading towards a weekly gain of about 17%.

If sustained, the weekly advance would represent bitcoin’s strongest performance in roughly two and a half years.

Market participants are now expected to closely monitor upcoming US fiscal developments, Treasury borrowing requirements and monetary policy signals for indications of whether the recent pressure on the dollar and long-term Treasury bonds will continue.