FX Daily: Much ado about buybacks, softer dollar
The recent US Treasury intervention in the bond market has sparked a discussion regarding its implications for the dollar, with many strategists anticipating a softer USD as a result. Per the full note from ING, this move is viewed less as a crisis of credibility and more as a strategic effort to manage high bond yields, possibly fostering a pro-risk environment that could undermine the dollar. Notably, markets are responding favorably, reflecting a preference for risk assets amidst this context. As of now, the currency pairs EUR/USD and GBP/USD are closely watched, with respective consensus targets of 1.1700 and 1.3400 across various firms, indicating a bullish outlook for the Euro and Pound against the dollar into the next quarters.
What the desk is arguing
The desk frames this as a shift towards a softer dollar favoring riskier assets, influenced by the recent Treasury actions designed to manage elevated longer-dated yields. Per the full note, this intervention might act more as a signaling exercise, addressing concerns over liquidity and yield management, rather than a direct challenge to US policy credibility. This perspective aligns with the expressed concerns over a looming fiscal consolidation plan aimed at addressing the ongoing budget deficit.
Supporting this view, many traders note that historical precedents, such as the need to counter President Trump's previous tariffs, suggest a pattern where the USD may weaken in response to Treasury asset management strategies. In fact, observing price action in pairs like EUR/USD (currently at 1.1466) and GBP/USD (1.3360) suggest that as the Treasury addresses yield concerns, the implications may favor a pro-risk dollar decline.
Where it sits in our coverage
For the EUR/USD, our median consensus target is 1.1700 with a range from 1.1200 to 1.2000. Key firms indicating bullish sentiment on EUR/USD include: - rabobank: Dec26 target 1.1400 - anz: Dec26 target 1.1400 - morganstanley: Dec26 target 1.1600
This bullish sentiment around EUR/USD contrasts with some caution expressed among FX desks, suggesting divergence in how firms perceive underlying risk factors. Notably, some firms are aligning with optimistic views that envision a move towards the upper end of the forecast ranges.
How other firms see it
The broader street sentiment largely aligns with positive trajectories for the EUR and GBP against the dollar. Aligned firms such as morganstanley and goldman predict targets that reflect this bullish outlook.
Conversely, firms like socgen and citi are projecting more risk-averse targets, suggesting potential retracements in these pairs, which might contribute to volatility amidst the expected USD weakness. It’s important to monitor developments in USD/CHF and USD/JPY as spillover effects from Treasury strategies will be evidenced in price movements across these intersections.
How firms align with this view
Aligned with the desk view
Key takeaways
- 01The US Treasury's intervention is seen as a strategic move to manage high yields rather than a loss of credibility.
- 02Market expectations are leaning toward a softer dollar, particularly favoring the EUR and GBP.
- 03Consensus targets for EUR/USD and GBP/USD are set at 1.1700 and 1.3400, respectively, indicating bullish market sentiment.
- 04Historical precedents suggest that proactive treasury measures often lead to softer dollar trajectories.
Market implications
Traders should watch for momentum in EUR/USD as it approaches the 1.1700 target, with risk-on sentiment possibly driving it further. Additionally, any announcement from the Treasury regarding fiscal consolidation could serve as a key catalyst in shaping market expectations for the dollar.
Risks to this view
A sudden shift towards aggressive hawkishness from the Federal Reserve or a disappointing fiscal strategy announcement could reverse the current bearish dollar trend, leading to a reassessment of positions in major FX pairs.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Bullish | 1.1725 |
Deutsche Bank | Neutral | 1.1668 |
J.P. Morgan | Bearish | 1.1300 |
Articles FX Daily: Much ado about buybacks, softer dollar Published 06:41 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download This week's US Treasury intervention in the bond market has caused much furore amongst the buy and sell-side financial community alike. We see the move more as a signalling tool that the US Treasury has a problem with high bond yields and wants to address it. For the time being, we favour this triggering a benign, risk-friendly dollar decline Chris Turner , Francesco Pesole and Frantisek Taborsky Most paths lead to a weaker dollar; we prefer the pro-risk route USD: Most paths favour a softer dollar Many commentators seem to be treating this week's US Treasury intervention in bond markets as a heinous financial crime.
We prefer to take the view offered by a former US Treasury official interviewed in the Financial Times today that this was a signalling exercise . Yes, these buy-back operations were originally designed to address market liquidity issues and the off-cycle nature of the adjustment has raised eyebrows. But the main takeaway has to be that higher longer-dated Treasury yields are firmly on the Treasury's radar and need to be addressed.
US Treasury Secretary Scott Bessent suggested yesterday that there might be some new fiscal consolidation plans incoming. These could centre on a task force to cut back on fraud in the same way that Elon Musk's DOGE tried to cut back on government spending. Most are sceptical that this will make any dent in the near 6% budget deficit, but let's see what is announced.
For the dollar, quite a few are comparing this week's Treasury buybacks to President Donald Trump's 'Liberation Day' tariffs and concluding this again undermines US policy credibility. During that period in April 2025, the Swiss franc, the euro and the yen led the charge against a weaker dollar. We see this week's developments less as a policy credibility story and more as a soft dollar, pro-risk story if the US Treasury is taking a greater interest in protecting the long end.
That probably means a gentler dollar decline and some outperformance of high-beta commodity currencies and emerging market currencies in general. If we're wrong and Treasuries and equities start selling off hard, then the story would revert to a lower USD/CHF, higher EUR/USD and high-yield FX selling off as volatility rises. On today's US calendar are the S&P PMI readings for August – all expecting continued expansion in activity.
DXY has support in this 98.65/70 region and will probably struggle to make it back above 99.00 now. Chris Turner EUR: US fiscal consolidation would be EUR/USD positive EUR/USD remains well supported, and, as above, we favour the kind of benign decline in the dollar that tends to float all boats. Not that anyone is expecting it, but should some true US fiscal consolidation emerge, the combination of tighter fiscal policy and looser monetary policy would be dollar-negative.
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