Dollar: Consolidating After Treasury Buybacks – DBS

The dollar index extended its weakness after the U.S. Treasury unexpectedly expanded the scale of long-dated bond buybacks, trading near 98.73 after briefly dipping below the 99 level earlier. Zhang Weiliang, research strategist at DBS Group Research, said the doubling of the buyback operation exceeded market expectations, adding downward pressure on the dollar, which has consequently weakened persistently in recent sessions.

**Why Doubled Buybacks Pressure the Dollar**

The U.S. Treasury's doubling of long-dated bond buybacks essentially injects more liquidity into the market and pushes down long-end yields, which undermines the relative appeal of dollar assets. DBS believes this policy signal, combined with a gradual narrowing of growth gaps between the U.S. and other major economies, as well as lagging U.S. equity performance, has collectively raised the risk premium on the dollar, subjecting it to multiple pressures.

**Relative Support for Non-USD Currencies**

In its latest outlook, DBS noted that Germany's fiscal stimulus measures are expected to boost eurozone growth, providing support for the euro; the Reserve Bank of Australia has already taken the lead globally in starting a new rate-hiking cycle, which is relatively favorable for the Australian dollar; the People's Bank of China's current policy stance leans toward guiding a modest appreciation of the yuan, which will also cap the dollar's movement against the yuan. The Monetary Authority of Singapore may adopt tightening measures in 2026, which is expected to support the Singapore dollar. Overall, improving fundamentals across non-USD currencies are constraining the dollar from multiple directions.

**Key Watch Points Ahead**

DBS expects the Federal Reserve to hold rates near 3.75% through 2027, with the dollar potentially showing a gradual uptrend in the third quarter, but in the near term, the liquidity effects from buyback operations may keep the dollar in a consolidative, softer stance. Market reports indicate that portfolio rotation is driving fund flows out of dollar assets and crowded trades; if this trend persists, the dollar's rebound potential will remain limited.