Dollar Heads for Weekly Loss as Investors Question U.S. Debt Strategy

By COMFORT OGBONNA

The U.S. dollar fell on Friday and was headed for its biggest weekly decline in several months as investors questioned whether the government’s efforts to stabilize the Treasury market would provide more than temporary relief.

The renewed weakness in the dollar came as investors continued to assess the U.S. government’s plans to increase purchases of longer-term Treasury securities. While the move initially helped ease pressure in the bond market, the relief faded quickly as concerns about the country’s growing debt burden and widening fiscal deficit returned to the forefront.

Treasury Secretary Scott Bessent said the government could increase its Treasury buybacks further after the Treasury Department announced plans to double the size of certain purchases of longer-dated government bonds over the coming quarter.

The buybacks are intended to improve market liquidity and help contain a sharp increase in long-term borrowing costs. However, investors have questioned whether the measures can address what they increasingly see as a broader fiscal problem rather than a temporary market disruption.

Bessent also said he and White House budget director Russell Vought would begin a new effort to reduce government spending under President Donald Trump’s direction.

The announcement did little to halt the rise in Treasury yields and instead raised concerns among some investors about the government’s increasingly active role in financial markets.

The dollar index, which measures the currency against six major counterparts, was down about 0.9% for the week at 98.76 and remained close to a three-month low.

The euro benefited from the dollar’s weakness, trading near $1.1693 and heading for a weekly gain of about 1%.

The British pound also remained close to a six-month high, rising 0.08% to $1.3643 and bringing its weekly gain to approximately 0.8%.

Other currencies also strengthened against the dollar. The Australian dollar climbed to about $0.71445, its highest level in two and a half months, while the New Zealand dollar reached $0.59735, its strongest level since June 1.

The Japanese yen was relatively stable at about 159.01 per dollar.

Japan’s latest inflation data provided additional support for expectations that the country’s central bank could raise interest rates. Core consumer prices increased at a faster annual pace in July, strengthening the argument for further monetary policy tightening.

In the U.S. bond market, the yield on the 30-year Treasury note rose about 1.4 basis points to 5.2508% on Friday. The benchmark 10-year Treasury yield was little changed at 4.7041% after rising 4.5 basis points the previous day.

The renewed pressure on longer-term bonds has become a major concern for investors because higher Treasury yields increase government borrowing costs and can raise financing expenses across the wider economy.

Higher yields can also make dollar-denominated assets less attractive if investors become concerned that rising government debt will eventually undermine fiscal stability.

Some investors have begun shifting part of their portfolios toward assets that are less directly tied to U.S. government finances.

Gold prices were on course for a weekly gain of more than 3%, reflecting continued demand for a traditional safe-haven asset amid uncertainty surrounding government debt, monetary policy and geopolitical risks.

Bitcoin also posted a sharp rise. The cryptocurrency climbed 3.65% on Friday to about $75,306.50 and was on track for a weekly gain of roughly 19%, which would be its strongest weekly performance in more than two years.

The moves in gold and bitcoin reflect growing interest in alternative assets as some investors seek to diversify away from U.S. government securities and the dollar.

The underlying concern for markets, however, remains the size of the U.S. government’s debt, which has surpassed $40 trillion.

Investors are increasingly questioning whether policy measures designed to influence long-term Treasury yields can provide a lasting solution when the fundamental issue is the government’s fiscal position.

Market strategists said authorities have the ability to influence borrowing costs in the short term, but sustained pressure from large deficits and rising debt could eventually limit the effectiveness of such interventions.

For currency markets, that uncertainty has become an additional headwind for the dollar. If investors continue increasing their exposure to foreign currencies and alternative assets, demand for the U.S. currency could remain under pressure.

The direction of Treasury yields, government spending and future fiscal policy will therefore remain important factors for the dollar in the coming weeks.