NEW YORK (Realist English). On September 9, the US currency continued to weaken for a third consecutive session amid a strengthening yen and investor concerns over the consequences of an expanded Treasury buyback programme.
The dollar index (DXY) fell 0.34% to 98.84 points, and according to Business Standard, is trading at 98.48. This week, DXY dropped to 98.13 — close to the seven-month lows recorded in late January at 95.55.
The key driver of pressure on the dollar was the launch of an expanded buyback programme for long-term Treasuries, while the market froze in anticipation of August consumer inflation (CPI) data, which will be the decisive argument for the Federal Reserve in choosing between a rate hike and a pause.
Treasury Buybacks: The “Debasement Trade” Returns
From September 9, the US Treasury Department began expanding its buyback programme for long-term government bonds with maturities of 10 to 30 years, increasing the maximum size of a single operation from $2 billion to at least $4 billion.
The programme runs until November 4, 2026. The annual potential, maintaining the current frequency (about 36 operations), rises from $72 billion to $144 billion, equivalent to roughly 15.6% of annual issuance of 10–30-year securities.
Officially, the Treasury says the goal is to “support liquidity in long-term segments where large dealer bids are received.” However, experts see deeper motives.
Economist Rauf Husein called the programme a “defensive intervention sending markets a signal that the government will not stand aside if Treasury liquidity deteriorates, the dollar depreciates, or investors refuse to buy US debt due to yields threatening US financing costs and financial stability.”
The decision was made against the backdrop of 30-year Treasury yields rising to 5.34% — the highest since 2007 — amid fears over deficit expansion and weakening demand for long bonds.
As early as August, when the Treasury first announced the doubling of buybacks, the market reacted sharply: the dollar fell, while gold and bitcoin surged. The Bloomberg Dollar Index lost 0.9% in August, continuing its decline after a 1.3% drop in July. Julius Baer analysts linked the strengthened programme to the return of the so-called “debasement trade” — a bet on dollar depreciation.
Treasury Secretary Scott Bessent told CNBC that buybacks could exceed $4 billion per operation, noting that the market “got a little ahead of itself” in the recent sell-off.
However, analysts warn that the Treasury’s attempt to support the bond market through buybacks could lead to dollar weakening, and some economists are already comparing Bessent’s policy to the Japanese path that led to prolonged yen devaluation. One expert called it “playing with fire” that could trigger a devaluation spiral.
Inflation in Focus: September 11 Data Will Decide Everything
The main event of the week will be the release of August consumer inflation data, scheduled for September 11 at 8:30 a.m. Eastern Time. These figures will arrive just five days before the FOMC meeting on September 15–16 and will be a key factor in the rate decision.
| Indicator | Forecast | Previous |
| Annual inflation (CPI) | 3.4% | 3.4% |
| Monthly inflation | +0.35% | +0.07% |
| Core inflation (annual) | 2.4% | 2.5% |
| Core inflation (monthly) | +0.20% | +0.20% |
Analysts attribute the acceleration in monthly inflation to rising energy prices: although diesel prices surged, gasoline did not hit new highs, yet retail fuel prices rose 2.9% in August after two months of decline. This is estimated to add about 15 basis points to the monthly CPI increase.
Fed at a Crossroads: Waller and Warsh Set Different Tones
The FOMC meeting on September 15–16 has become one of the most anticipated of the year. At stake is a 25 basis point rate hike from the current range of 3.50–3.75% or keeping it unchanged.
Two powerful signals came from the labour market and Fed leadership:
- Strong jobs report — August Nonfarm Payrolls tripled forecasts, bringing the market back to discussing a hike. UBS revised its forecast and now expects two hikes — in September and December. Futures traders raised the probability of a September hike to 60% from 50%.
- Fed position — board member Christopher Waller said that if inflation continues to slow, he would support keeping the rate at its current level. His vote will “strongly depend” on August CPI data. Waller confirmed the forecast for core indicators to rise about 0.2% in August.
Earlier, Fed Chairman Kevin Warsh set a more hawkish tone at Jackson Hole, raising market expectations for a hike from 35% to 60–66%.
Thus, the Fed faces a difficult choice: a strong labour market and risks of accelerating inflation amid rising energy prices push toward a rate hike, yet the Treasury’s buyback programme effectively exerts downward pressure on long-term yields, which could make a rate hike less effective and even exacerbate pressure on the dollar.
Technical Picture: DXY at Critical Support
From a technical standpoint, the dollar index is in a critical zone. DXY lost support at 99.00, which now acts as resistance, and is moving within a downward channel. The nearest “bear” target is 98.30, a zone of strong historical support.
An important technical signal was the failed recovery attempt in early September: on September 2, DXY briefly rose to 99.86 but then sharply reversed downward after weak ADP employment data, breaking through the 99.30–99.40 zone in less than 15 minutes.
IC Markets analysts note that the dollar is at a “key crossroads”: “Until CPI data appears, expect volatile USD movement, with the 98–99 zone on DXY an important area to watch.”
Forecasts: Consensus Points to Further Weakening
Expert opinions on the dollar’s future are divided, but most lean toward weakening:
- Goldman Sachs estimates the dollar is overvalued by about 15% and expects a “shallower decline” in 2026, though it notes that strong economic data and rate hike expectations are still supporting the currency.
- BMI (Fitch Solutions) forecasts DXY moving in the 98–102 range in 2026.
- BBH maintains a “bearish” view due to fading confidence in US trade and security policy, as well as a deteriorating fiscal reputation.
- The Bloomberg consensus forecast suggests the Bloomberg Dollar Spot Index will fall about 3% by the end of 2026, mainly against the Japanese yen.
The key factor remains the September 11 inflation report. If the data comes in “hotter” than forecasts, the Fed may be forced to hike, providing the dollar with temporary support.
However, if inflation continues to slow and the Treasury buyback programme gains momentum, the dollar risks continuing its decline to new lows.
