Treasury Secretary Scott Bessent's recent intervention to curb rising US borrowing costs through increased bond purchases is raising concerns among investors that the dollar will ultimately bear the brunt. Many market participants view this as a pivotal moment, signaling Washington's more active role in managing its borrowing expenses. This move, following other efforts to control long-term yields, has reignited fears that US policy could undermine confidence in the dollar, prompting investors to seek alternatives.
Gerald Gan, Chief Investment Officer at Reed Capital, stated that the dollar is the "biggest casualty," suggesting Bessent is deliberately lowering long-term real rates and accepting a weaker dollar to support the economy. The Treasury announced it would "at least double" its planned purchases of 10- to 30-year bonds after borrowing costs surged to multi-year highs. This departure from the department's usual "regular and predictable" debt management approach has made Bessent the most interventionist Treasury chief in decades. Such actions can reduce the appeal of dollar-denominated debt and, if seen as facilitating further American borrowing, could devalue the US currency.
A Bloomberg gauge of the greenback recently hit a three-month low, falling approximately 0.8% the day prior, with currencies like the yen, Swiss franc, and New Zealand dollar gaining against it. Stephen Chiu, Chief Emerging Markets FX Strategist at Bloomberg Intelligence, noted that traders might perceive this as an attempt to suppress market pricing around US fiscal sustainability and the Federal Reserve's inflation-fighting credibility. Andrew Canobi of Franklin Templeton echoed this sentiment, suggesting Bessent is willing to "sacrifice a bit of dollar strength" to manage term yields, as "something has to be the relief valve."
This isn't Bessent's first market intervention; he previously joined Japan in supporting the yen, leading some to believe policymakers are panicking. The current administration's occasional embrace of a weaker dollar, coupled with these interventions, reinforces the idea that Washington is increasingly willing to intervene in markets to keep borrowing costs in check. While the dollar has historically weathered similar concerns, some experts, like Gerald Gan, advise diversifying away from the dollar in light of these developments.
