US Dollar: Upside capped as yields ease – MUFG

MUFG’s Lloyd Chan notes the US Dollar weakened after US Treasury Secretary Bessent announced a major expansion of long-dated Treasury buybacks, which pushed long-end yields lower. Chan argues moderating Fed tightening expectations and efforts to contain long-end yields are likely to cap Dollar upside, making a renewed sustained Dollar rally harder without higher US inflation or yields.

Dollar upside constrained by buybacks

"The US dollar weakened after US Treasury Secretary Bessent announced a significant expansion of long-dated Treasury buyback operations, a move to ease pressure from rising long-end yields."

"Looking ahead, moderating Fed tightening expectations and Treasury efforts to contain long-end yields could continue to cap dollar upside."

"Absent a renewed rise in US inflation or yields, the hurdle for another sustained dollar rally is becoming increasingly high."

"While buybacks alone are unlikely to alter longer-term fundamentals, they do signal willingness by policymakers to lean against further yield increases."

"This suggests the relative-rate story that has supported the dollar is fading."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)