According to ABN AMRO’s Georgette Boele, sentiment towards the US Dollar has weakened as investors focus on fiscal deficits and rising risk premia, which are outweighing the support from higher US Treasury yields [1]. The US Treasury’s expanded buyback programme has not reassured investors, who remain concerned about US debt dynamics and fiscal risks [1].
Boele notes that even prior to the announcement of the buyback programme, the US Dollar was struggling despite higher Treasury yields due to these fiscal concerns [1]. Following the announcement, US Treasury yields fell and the US Dollar came under increased pressure across the board [1]. The euro has benefited from this dollar weakness and is likely to continue doing so if the dollar declines further [1].
In the current environment, the risk premium is seen as a more significant driver of the US Dollar than nominal yields [1]. Since the start of July, the US term premium has been trending upward, while the US Dollar has moved lower [1].
CONCLUSION
The US Dollar is under pressure as fiscal concerns and rising risk premia overshadow the impact of higher Treasury yields. Market participants remain focused on US debt dynamics, and the euro stands to benefit if the dollar continues to weaken.