The U.S. dollar nursed steep losses on Thursday, hovering near three-month lows as investors digested measures announced by the U.S. Treasury Department to help calm the bond market that had seen long-end yields hit their highest since 2007.
The dollar index, which measures the U.S. currency against six other units, was at 98.938, around its lowest level since mid-May. The euro was at $1.1676, perched at the highest level since late May.
The U.S. Treasury unveiled plans to double liquidity support buyback operations for longer-dated bonds after a steep bond selloff pushed the 30-year Treasury yield to a 19-year high of 5.337%. The yield was last at 5.184% after dropping 9 basis points following the announcement on Wednesday.
Tony Sycamore, market analyst at IG, said Treasury was removing longer-duration bonds from the market while continuing to issue more short-term bills, putting downward pressure on long-term yields without the Federal Reserve expanding its balance sheet.
"It is not formal QE and not yield curve control, but it is a clear signal that Washington is prepared to lean against rising term premia," he said.
Brian Jacobsen, chief economic strategist at Annex Wealth Management, said the move was a temporary salve and shows how "we're in an era of fiscal dominance and modern monetization."
"The Fed is impotent in affecting long-term rates. Now the Treasury is going to issue more short-term debt because of weak demand for long term debt," Jacobsen said. "Even if the Fed hikes, the Treasury is effectively pumping more money-like short-term debt into the economy."
Meanwhile, concern about inflation deepened at the Fed's meeting last month, with several policymakers ready to raise interest rates and many saying a hike in borrowing costs would be needed if inflation does not decline to the U.S. central bank's 2% target, the minutes of the session showed.
The Japanese yen last fetched 158.32 per dollar, pulling away from the closely watched 160 level after giving back much of its joint intervention gains from the end of July.
Sterling was at $1.3603, while Swiss franc last bought 0.7981 per U.S. dollar, near a two-month high.
