Dollar: Post-Buyback Depreciation Concerns Weigh – Scotiabank

The U.S. dollar index is currently trading at 98.869, extending its recent downward move and approaching the lower end of its range since mid-June.

**Bond Buyback Doubling Triggers Market Reaction**

Scotia Bank strategists Shaun Osborne and Eric Theoret noted that the immediate trigger for the dollar's decline was the market's reaction to the U.S. Treasury's decision to double the size of its bond buyback program. The move was interpreted by the market as a signal that Washington intends to guide the dollar weaker, further reinforcing investor expectations of medium-term dollar depreciation and weighing on the greenback.

**Debasement Narrative Continues to Build**

Market reports indicate that the "debasement trade" has been gaining momentum recently — with investors concerned that fiscal deficit expansion and accommodative monetary policy are eroding the dollar's purchasing power, prompting a shift into inflation-hedging assets such as gold. According to reports, some market participants believe the U.S. government is deliberately willing to accept a moderately weaker dollar to ease competitive pressure on export competitiveness with major trading partners.

**Outlook**

The warning from Scotiabank strategists suggests that the dollar faces directional pressure in the near term. Should the fiscal side continue to signal expansion, coupled with declining safe-haven demand for dollar assets externally, the dollar index's weak pattern could persist. Investors should closely monitor the U.S. Treasury's subsequent policy signals and the defense of key dollar support levels to gauge the next phase of direction.