Euro Holds Steady Against Dollar Amid US Debt Strategy Concerns

The euro held its ground against the US dollar during Asian trading on Monday, hovering around the 1.16847 level, extending gains for a third consecutive session. Broad dollar weakness served as the primary support for the pair, as markets digested the impact of a recent series of US fiscal and exchange-rate policy signals.

**Treasury Strategy and FX Intervention Both Weigh on the Dollar**

The core reason for dollar pressure lies in market concerns that the US is willingly ceding some dollar strength to stabilize the Treasury market. Reports indicate that US Treasury Secretary Bessent supported and participated in coordinated FX intervention with Japan, selling euro-yen to bolster the yen. This move has been interpreted by markets as a policy choice under the "save Treasuries" framework—using international cooperation to smooth market volatility—but it simultaneously undermines the dollar's short-term appeal. Citigroup analysts noted that an informal "currency alliance" is forming between the US and Japan, with dollar strength being deliberately traded away in exchange for debt security.

**Policy Uncertainty Intensifies Dollar Selling**

Meanwhile, the Fed chair's relatively limited communication, combined with several policymakers leaning toward rate hikes, has left investors puzzled over the policy outlook. Rajeev De Mello, global macro portfolio manager at Gama Asset Management, said fiscal and monetary policy signals constitute a "double shock," and he is reducing holdings of US Treasuries and the dollar. He noted that investors have begun pricing a "policy risk premium" into the dollar and the Treasury yield curve. Although the 30-year Treasury yield previously broke above the 5% multi-year high, the dollar has weakened against all G10 currencies over the past month, and this anomalous correlation highlights a shift in market sentiment.

**Euro Benefits from Reserve Diversification Discussions**

Amid talk of policy-driven dilution of dollar creditworthiness, the euro's role as an alternative reserve currency has drawn increased attention. Some analysts argue that the global reserve system's reliance on a single sovereign currency may decline, providing additional demand support for the euro. However, sustained euro strength against the dollar still depends on Europe's own economic fundamentals and the subsequent evolution of US-Europe policy divergence.