US Treasury Bond Purchases Stabilize Dollar Below 2.98 Shekels Amid Global Market Calm

The foreign exchange market showed minor movements both locally and globally following a sharp decline in the US dollar the previous day. This morning, the dollar traded unchanged below 2.98 shekels. The euro rose by 0.2%, trading just under 3.48 shekels, while global markets also stabilized: the US Dollar Index remained steady at 98.8 points, the euro held near $1.17, the British pound hovered around $1.36, and the dollar gained 0.2% against the Japanese yen to 158.4.

Yesterday's significant dollar drop against major currencies coincided with the US Treasury's announcement to double its repurchases of long-term US government bonds from September through November 4. This move aims to counteract the sharp rise in yields caused by declining US government bond holdings since June. Tony Sycamore, a market analyst at IG, explained that the Treasury is removing long-term bonds from the market while issuing more short-term debt, which puts downward pressure on long-term yields without requiring the Federal Reserve to expand its balance sheet. Sycamore emphasized this is not official quantitative easing or yield curve control but signals Washington's readiness to address rising long-term premiums.

Brian Jacobsen, chief economic strategist at Annex Wealth Management, described the Treasury's action as a temporary relief illustrating an era dominated by fiscal policy. He noted the Federal Reserve lacks influence over long-term rates, and the Treasury's increased short-term debt issuance acts like injecting money into the economy, even amid Fed rate hikes. Ronen Menachem, chief market economist at Mizrahi Tefahot, echoed this view, questioning whether the Treasury's intervention is a short-term measure or the start of a longer trend. He highlighted ongoing factors driving market yields higher, including inflation concerns, the US budget deficit, foreign sales of US bonds, and the Fed's reluctance to affect long-term rates through interest rate policy.