Treasury Secretary Scott Bessent's recent intervention to curb rising US borrowing costs is leading some investors to believe that the dollar will ultimately bear the brunt. This action, following other efforts to control long-term yields, is raising concerns that US policy could erode confidence in the dollar and encourage investors to seek out alternative currencies and assets.
Gerald Gan, Chief Investment Officer at Reed Capital, views the dollar as the primary casualty, suggesting Bessent is deliberately lowering long-term real rates and tolerating a weaker dollar to support the economy. Similarly, Audrey Childe-Freeman, Chief FX Strategist at Bloomberg Intelligence, sees the move as potentially bearish for the dollar, interpreting it as an attempt to suppress market pricing around US fiscal sustainability and the Federal Reserve's inflation-fighting credibility.
The Treasury announced an increase in planned purchases of outstanding 10- to 30-year bonds, stating it would at least double them after borrowing costs reached multi-year highs. This move signals a departure from the department's usual "regular and predictable" approach to debt management. Such actions to engineer lower US yields can diminish the attractiveness of dollar-denominated debt compared to assets in other regions. If investors perceive the goal as easing the path for additional American borrowing, this can also devalue the US currency.
Following the announcement, a Bloomberg gauge of the greenback declined to a three-month low before a slight rebound. The yen, Swiss franc, and New Zealand dollar were among the currencies that gained against the US dollar. Andrew Canobi, Director of Fixed Income at Franklin Templeton, stated that Bessent is "effectively saying we're prepared to sacrifice a bit of dollar strength in order to keep term yields somewhat in check." Shoki Omori, Chief Fixed Income Strategist for Japan at Deutsche Bank AG, anticipates the yen will be the biggest beneficiary over the next three to six months, also favoring gold, the Swiss franc, and the euro as dollar alternatives.
