If yields do not show improvement, USD could continue to experience downward pressure

Two significant developments have occurred this week. Firstly, the United States federal debt has surpassed a critical threshold, reaching over $40 trillion.

This event has led to a drop in the value of the US dollar and a rise in US Treasury yields.

In addition, the US Treasury implemented actions to enhance liquidity. On August 19, 2026, the Treasury revealed an expansion of liquidity support buyback operations for long-term securities in the 10- to 20-year and 20- to 30-year segments from $2 billion to $4 billion per operation.

This unexpected decision is set to take effect from September 9 until November 4, 2026, and is perceived as a substantial and surprising intervention by market participants.

This move was driven by the 30-year yield hitting a nearly 19-year high of around 5.3 percent, which increased the government’s borrowing expenses.

The underlying objective of this measure is to enhance liquidity and ensure the proper functioning of the market. And I believe that it is independent of yield-curve control strategies.

Following the announcement, long-term yields experienced a decline. Particularly, the 30-year yield fell by approximately 10 basis points, the US dollar depreciated, and gold prices rose significantly.

It is important to note that these operations are classified as technical manoeuvers and not as routine quantitative easing (QE) measures.

Further analysis is essential to assess the actual effects of these changes and to determine if this represents a short-term adjustment or if the US economy is dealing with a more fundamental problem.

If yields do not show improvement, the US dollar could continue to experience downward pressure, especially given that Treasury yields have only seen marginal improvement.

The future changes in yields are unclear, so it’s important to keep an eye on any ups and downs.

Additionally, it is noteworthy that this decision was made by the US Treasury and not the Federal Reserve, highlighting its status as a debt-management and liquidity-support initiative.

Overall, recent data from the US economy indicate signs of stability. While economic activity has undeniably slowed, it has not deteriorated to a level of severe concern.

For example, data from last week revealed that new home sales increased by 4.2 percent in July after a decline in the preceding month, although persistently high mortgage rates continue to pose challenges for borrowers.

The Purchasing Manager’s Index (PMI) Composite Output has increased from 54.5 to 56.0, reaching its highest point in 52 months. Additionally, the PMI Services Business Activity went up from 54.6 to 56.8, hitting a 20-month high.

These improvements have led some analysts to describe current economic conditions as operating under a “soft landing.”

The forthcoming personal income and spending reports are expected to yield further insights into consumer sentiments.

Additionally, the labour market report, scheduled for release on Friday, should be regarded with particular attention. Any changes in job numbers can cause big reactions in the market due to updates in the benchmark payroll data.

Key events this week will include the Personal Income & Spending report, which is set for release on Wednesday. Given that inflation remains above the Federal Reserve’s target, analysts will be closely monitoring this data.

Furthermore, significant attention will be directed towards the Jackson Hole Economic Policy Symposium, which will convene from Thursday to Saturday.

In light of these events, the rising Brent crude oil prices, which have surged more than 5 percent this week to approximately $94 per barrel, are raising alarm bells for countries that rely on oil imports.

Although the United States is attempting to implement stricter sanctions on Iran, Iran remains firmly positioned in the Strait of Hormuz.

Any further threats from the US regarding sanctions could potentially disrupt oil shipments originating from the Gulf region. The technical close of oil above the $90 benchmark is not a particularly favourable indicator.

Additionally, market reactions to the US Treasury’s decision to double its buyback operations for longer dated Treasuries have significantly boosted gold prices.

The momentum appears to be gaining grip, and should central banks opt to participate, demand among buyers may intensify.

However, central banks are likely to assess the Treasury’s decision thoroughly before making significant interventions.

There still exists a possibility of a market correction this week, as gold prices had already surged over 5 percent in the previous week.

Besides the impact of the US Treasury’s buyback decision, factors such as the broader US debt scenario and a weakening dollar also lend support to gold prices.

Any price retractions may present opportunities for investors to buy gold at lower levels, with support identified at $4550 and $4510, which are anticipated to hold firm for further advances.

A breakout beyond $4688 is necessary for gold to reach $4750 or $4810.

The market seems to be getting ready for another chaotic week ahead.

WEEKLY OUTLOOK - Aug 24-28

#GOLD @ $4604- Any pullback should present a chance to buy. Support levels are at $4540 and $4480. However, a breakout above $4670 will boost expectations for $4750.

#EURO @ 1.1677- The support level is at 1.1610, which is expected to remain steady for levels at 1.1740 or 1.1798. If it fails to rise above this, there is a risk of dropping to 1.1625.

#GBP @ 1.3645- Pound Sterling could encounter resistance levels at 1.3690 and 1.3735. On the other hand, support levels are located at 1.3585 and 1.3540.

#JPY @ 158.98- Japanese Yen benefits most from the Treasury buyback since the Bank of Japan is feeling the heat due to its weak currency.

A weaker USD helps to ease the situation. As long as the resistance level at 160.25 holds, the dollar will stay under pressure, with support levels at 157.80 and 156.50. If the resistance breaks, the dollar could rise towards 161.50.

Copyright Business Recorder, 2026