The dollar slipped on Friday, trading near a three-month low against the euro, as concerns mounted that Treasury Secretary Scott Bessent's plan to expand buybacks of longer-dated government debt could weigh further on the U.S. currency. The move comes after the department surprised markets by pledging Thursday to at least double its repurchases of longer-dated Treasuries in an effort to rein in bond yields.

Market Context

Long-dated Treasury yields jumped this week, with the 30-year yield reaching its highest level since 2007. The dollar index, which measures the greenback against a basket of currencies including the yen and euro, fell 0.05% to 98.79. Meanwhile, bitcoin continued its surge, trading up 6.06% at $77,060 after earlier touching $79,455—the highest since May 15—as some traders viewed the cryptocurrency as an alternative store of value amid currency uncertainty.

Analysis

Traders cited a confluence of concerns weighing on dollar sentiment: deteriorating fiscal outlook, heavy Treasury issuance, geopolitical risk stemming from the war with Iran, and uncertainty over the Federal Reserve's policy path. Analysts say that attempting to hold yields down through buybacks may simply shift the burden of fiscal concerns onto the currency—and so far, the strategy hasn't achieved its primary goal, as yields have crept back higher despite the interventions.

"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. "The market is pushing back."

The euro earlier reached $1.1711, the highest level since May 14, before settling up 0.03% at $1.1682. Sterling strengthened 0.04% to $1.3635, having touched $1.3675—the highest since February 11. The Japanese yen also firmed, gaining 0.14% to 158.82 per dollar after data showed core consumer inflation accelerated in July, bolstering the case for a potential rate hike by the Bank of Japan.

Key Numbers

- Dollar index: 98.79 (-0.05%)

- Euro: $1.1682 (+0.03%), earlier reached $1.1711 (high since May 14)

- Sterling: $1.3635 (+0.04%), earlier reached $1.3675 (high since Feb. 11)

- Japanese yen: 158.82 per dollar (-0.14%)

- Bitcoin: $77,060 (+6.06%), earlier touched $79,455

- 30-year Treasury yield: highest level since 2007

What to Watch

The next major test for whether Treasury yields continue climbing—and whether the dollar faces further pressure—may come next Friday when Federal Reserve Chairman Kevin Warsh delivers a speech at the Jackson Hole Symposium. Warsh unsettled markets after the Fed's July meeting by offering few clues on how policymakers might respond to persistent price pressures, when a divided Fed left interest rates unchanged. Fed funds futures traders are currently pricing in 35% odds of a September rate hike, rising to 69% by December. Any signals from Warsh about the Fed's reaction function could move both yields and the dollar significantly.

Separately, U.S. and Japanese authorities propped up the yen through joint intervention last month, but investors say the Japanese currency could resume its decline unless the Bank of Japan tightens policy further following Friday's inflation data.