Dollar Hits Three-Month Low as Treasury Expands Buybacks, Fed Minutes Show Inflation Concerns

The U.S. dollar weakened significantly on Wednesday, touching its lowest point in over three months, as a U.S. Treasury announcement of expanded bond buybacks sent government yields lower. The move was compounded by Federal Reserve meeting minutes showing policymakers are increasingly concerned about persistent inflation.

The U.S. Dollar Index, which measures the greenback against a basket of six major currencies, fell 0.7% to 98.92 as of 1:40 p.m. ET. It earlier hit a low of 98.77, its weakest level since May 14.

Treasury Intervention Eases Yield Pressure

The fixed-income market saw a significant reversal after the U.S. Treasury Department announced it would at least double the size of its long-term debt buyback operations. The move provided relief to a bond market that had seen 30-year yields climb to a nearly two-decade high.

• Effective September 9, liquidity support buyback operations for long-term nominal securities (10-to-30-year range) will increase from $2 billion to $4 billion per operation.
• The Treasury stated the expansion reflects its "willingness to provide greater liquidity support for the long nominal sector."

In response, the 30-year Treasury yield fell 7.2 basis points to 5.213%. This was a sharp retreat from the previous day's high of 5.337%, a level not seen since June 2007.

Fed Minutes Reveal Hawkish Stance

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Minutes from the Federal Reserve's July 28-29 meeting, released Wednesday, indicated that officials expressed heightened concern about inflation. Several policymakers stated that interest rate hikes would be necessary if inflation fails to return to the central bank's 2% target.

The minutes also revealed that three policymakers dissented at the July meeting, voting for a 25-basis-point rate hike instead of the committee's decision to hold the benchmark rate steady in a 3.50% to 3.75% range. Officials warned that delaying action could force more aggressive and costly tightening measures in the future.

Currency Markets React

The dollar's decline provided a lift to other major currencies. The euro rallied 0.7% to $1.1660, its highest since May 14, while the British pound rose 0.5% to $1.3596, a peak not seen since May 11.

Against the Japanese yen, the dollar weakened by 0.7% to 158.54. The move helped the yen recover some of its recent losses against the greenback. Other currencies also saw significant gains, with the South Korean won strengthening nearly 2% against the dollar.