The Dollar Index has broken below its 38.2% retracement near 99.41 after Washington expanded Treasury bond buybacks, and a further slide through 95.55 would open the door toward the 90 area. EUR/USD mirrors that setup: a break above 1.20 would point toward 1.3554. Analysts, Fitch and Ray Dalio all frame the move as a question about US debt rather than a one-week reaction.
Treasury expands buybacks after yields spike
The US Treasury said on August 19 it would raise its maximum buyback operations in the 10-20 year and 20-30 year sectors from $2 billion to at least $4 billion, with larger operations running between September 9 and November 4. The announcement followed a 30-year Treasury yield that briefly touched 5.34%, its highest level since 2007. Treasury Secretary Scott Bessent said buybacks could exceed $4 billion per issue and described 30-year bond liquidity as "very poor."
Long yields fell first but the ten-year yield reversed higher during Bessent's own CNBC appearance and recovered much of its earlier decline. Analysts at UBS and Wellington Management argue buybacks reshape debt maturity without reducing the total borrowing the market must absorb, since Treasury still has to finance the purchases through more short-term bill issuance.
Fitch and Dalio flag the fiscal backdrop
Fitch affirmed the US rating at AA+ with a stable outlook on August 13 but projects general government debt rising from around 117% of GDP at end-2025 to 128% by 2030, against a 46.3% median for AA-rated peers. It also expects the interest-to-revenue ratio to reach 12.6% by 2028, versus a 3.5% median for AA peers. Bessent counters that the deficit likely already peaked, though markets are still waiting on the data to confirm it.
Ray Dalio called the US government's financial position an inflection point and warned that debt could eventually become unmanageable without cutting spending, raising revenue and lowering interest rates together.
Technical levels line up for both currencies
The Dollar Index has already broken below 99.41, the 38.2% retracement of its rebound from 95.55 to 101.80, with the 55-day EMA near 100.04 capping any recovery. A firm break of 97.94 would put 95.55 back in focus, and a breach there would threaten the index's multi-decade rising channel and open the way toward 89.29, close to the psychological 90 level.
EUR/USD faces the mirror image of that test around the 1.20 area, which also holds 1.2019, the 38.2% retracement of the pair's long decline from 1.6039 to 0.9534. A clean breakout above 1.20 would open the way toward 1.3554, the 61.8% retracement of that decline.
Jackson Hole next week adds another dimension: markets will watch how Fed Chair Kevin Warsh, who has previously criticized central-bank bond purchases for holding borrowing costs artificially low, defines the line between monetary policy and Treasury's growing role in bond-market conditions.
Source: ActionForex
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