Dollar: Bearish Outlook Reinforced by Bull Steepening – TD Securities

TD Securities strategists recently noted that the U.S. Treasury's latest buyback announcement is reinforcing the bearish outlook for the dollar. From the yield curve shape, the bull steepening structure further confirms the dollar's downside momentum, implying that even against a broadly looser rate environment, the dollar still faces structural pressure. As of writing, the dollar index is trading near 98.75, extending its recent weak trend.

**Treasury Buyback Sends Key Signals**

Analysts believe that Treasury buyback operations directly impact the structure of the U.S. bond market from the supply-demand perspective, which in turn transmits to the exchange rate. The buyback means the government is withdrawing circulating bonds from the market, which, while lowering long-end yields and driving the yield curve toward bull steepening, also weakens the yield appeal of dollar assets. TD Securities strategists emphasize that this policy signal, combined with current market pricing, is systematically undermining the logic supporting long dollar positions.

**Policy Expectation Shift Intensifies Downside Pressure**

According to TD Securities' earlier analysis, if the Federal Reserve keeps rates unchanged at upcoming meetings and policymakers show a unified stance, the dollar could face additional selling pressure as risk premiums fade. The market had previously priced in the possibility of rate hikes under the new decision-making framework, providing temporary support for the dollar, but as policy path expectations adjust, this support is eroding. The analysis notes that once the market reassesses the rate outlook, short dollar positions could further accumulate.

**External Market Linkages Provide Corroboration**

Against the dollar's weakening backdrop, performance in other asset classes can offer reference. TD Securities' recent independent research shows that although the short-term precious metals market is constrained by factors such as high oil prices and fluctuating monetary policy expectations, the dollar's structural weakness is expected to provide medium-term support for related asset prices. Market participants caution that investors should monitor the transmission pace of currency fluctuations to broader asset prices.