The U.S. dollar held near three-month lows on August 24 as Treasury debt concerns weighed on the currency, with the dollar index trading around 98.8 after a sharp selloff triggered by the government’s expanded bond-buyback program and record debt milestone.
The dollar’s weakness accelerated after the Treasury Department announced on August 19 that it would double the size of its long-dated debt buybacks to at least $4 billion per operation, up from $2 billion. Treasury Secretary Scott Bessent said the next day that the buyback volume could be expanded even further, signaling an aggressive effort to suppress long-term borrowing costs as the 30-year Treasury yield surged to 5.27 percent—its highest level since 2007.
According to Marc Chandler, chief market strategist at Bannockburn Global Forex, the Treasury’s strategy has backfired on the currency. “Bessent’s efforts to suppress U.S. yields haven’t done much for U.S. yields, but it’s undermined the dollar,” Chandler told Reuters. “The market is pushing back.” The buyback announcement briefly steadied yields, but long-dated rates have since climbed back higher, leaving the dollar as the collateral damage.
The currency weakness coincided with the U.S. national debt crossing $40 trillion for the first time, according to Treasury Department data released August 19. The milestone underscores the fiscal pressures weighing on the dollar’s credibility as a reserve asset. Mohamed El-Erian, Chief Economic Advisor at Allianz, warned on August 22 that the 30-year Treasury yield at 5.27 percent signals a structural shift—a lasting change in how the bond market prices U.S. debt—that will make America more expensive to operate.
El-Erian noted that higher long-term borrowing costs ripple across the entire economy, pushing up interest rates on mortgages, car loans, credit cards, and corporate financing. With the U.S. national debt at nearly $40 trillion, every 1 percent rise in yields adds roughly $400 billion annually to government borrowing costs, leaving less money for other priorities and putting pressure on households and businesses already grappling with affordability challenges.
Central Banks Pivot Away From the Dollar
The dollar’s weakness reflects deeper structural concerns about U.S. fiscal health that extend beyond Wall Street. An Invesco survey of institutions managing $29 trillion found that 61 percent of central banks now believe rising U.S. debt is weakening the dollar’s long-term position as a reserve asset, up from 20 percent in 2024. For the first time in three years, more central banks plan to reduce their dollar holdings than increase them over the coming decade, according to a separate survey by the Official Monetary and Financial Institutions Forum.
The bond sell-off has been global, with 30-year yields across major economies surging to multi-decade highs. The U.S. 30-year Treasury’s climb reflects anxiety about sticky inflation, a debt-laden economy, and geopolitical tensions—including an Iran stalemate that sent oil prices higher in August. El-Erian’s August 20 New York Times opinion piece, titled “America Is About to Get More Expensive,” laid out how the structural shift in Treasury yields will increase the cost of servicing federal debt and constrain economic growth.
The Treasury’s doubled buyback plan—targeting the 10- to 30-year portion of the market beginning September 9—represents a rare direct intervention in the bond market. However, analysts question whether the effort will prove sufficient. The deficit for the first 10 months of fiscal 2026 has already widened significantly, and the sheer scale of government issuance required to fund the $40 trillion debt load may overwhelm the Treasury’s stabilization efforts.
Fed funds futures traders are currently pricing in a 40 percent chance of a September rate hike, rising to 72 percent for December. Federal Reserve Chairman Kevin Warsh is scheduled to deliver a speech at the central bank’s Jackson Hole symposium on August 30, and analysts say the dollar’s near-term direction may hinge on whether he offers clarity on how policymakers will respond to persistent inflation pressures and the fiscal deterioration now visible in the bond market.
Sources
- Reuters — Dollar fell to three-month low against euro on August 21 as Treasury buyback concerns mounted; dollar index at 98.80; Marc Chandler quote on buyback strategy
- Treasury Department — August 19 press release announcing doubling of buyback sizes from $2 billion to at least $4 billion per operation for 10- to 30-year debt, effective September 9
- CNBC — Treasury Secretary Bessent says buyback operations could be expanded further; dollar near three-month low on August 21
- ECIKS.org — Mohamed El-Erian warning on August 22 that 30-year Treasury yield at 5.27% signals structural shift; yield climbed from 1.7%, highest since 2007; El-Erian August 20 New York Times piece on rising borrowing costs
- CNBC — U.S. national debt reached $40.05 trillion on August 19, 2026, according to Treasury Department data
- Invesco Global Sovereign Asset Management Study — 61% of central banks managing $29 trillion say rising U.S. debt weakens dollar’s reserve status, up from 20% in 2024
- Official Monetary and Financial Institutions Forum Survey — For first time in three years, more central banks plan to reduce dollar holdings than increase them over next decade
