Dollar Pinned Near Three-Month Lows as Yields Rise Without It

The Dollar Index closed out the week pinned near cycle lows, having touched a three-month low on Thursday and last near 98.80, down 0.10% and sitting below its 200-day moving average within a recent 98.79-99.87 range. The proximate driver was Treasury Secretary Scott Bessent's August 19 move to at least double long-end Treasury debt buybacks, which knocked the dollar down almost 0.8% against a basket that day. An overnight risk-off tape — S&P 500 -0.9% to 7,641, Dow -1.3% to 52,759, Nasdaq -1.0% to 26,067, VIX +7.5% to 16.01 — paired with bond yields elevated near multi-year highs and US-Iran tensions failed to hand the dollar either a haven or a carry bid, extending a yield/DXY decoupling that has recurred this cycle. Gold rose 2.24% to roughly 4,620 alongside those elevated yields, underscoring fiscal and policy-credibility concerns ahead of Jackson Hole.

The 10-year yield sits near 4.71% and the 30-year near 5.25%, roughly steady on the session and just off the roughly 19-year high of 5.33% hit August 18. MRB Partners, cited by the desk, attributes the rise to higher real bond yields while inflation expectations have stayed calm, while the FT is cited saying "the effect of the Treasury buyback announcement has fizzled" after Bessent's August 19 doubling of long-end buybacks briefly pushed yields down before they rebounded August 20. Minutes from the July 28-31 FOMC meeting, released August 19, were read as disappointing for the dollar.

EUR/USD consolidated near 1.1700 on Friday after touching 1.1676 Thursday, as the Eurozone Composite PMI rose to 52.1 — its highest since November — with manufacturing at 50.5, up from 49.8. GBP/USD rallied to an intraday high of 1.3675, its best since February 11, on a UK Services PMI beat (52.8 vs 52.1 prior), before fading to 1.3626-1.3656 as the US Composite PMI jumped to 56; cable still finished the week up over 0.6%. USD/JPY was little changed near 159, down 0.02% on the day, as accelerating Japanese inflation reinforced bets on a BOJ hike. USD/CAD eased to around 1.3745, its lowest since mid-May, the loonie's fourth straight weekly gain, helped by WTI near $86-87 and trade-deal optimism.

USD/JPY rotated near 159 on Friday, little changed (-0.02%), after Japan's July CPI showed headline inflation at 1.9% — its highest 2026 level — and core CPI up 1.8% y/y for a second straight month of acceleration. That reinforced bets the BOJ hikes to 1.25% from 1.0% at its September 17-18 meeting, capping fresh USD/JPY upside. Earlier in the week the yen firmed near 1% on August 19 when the Treasury's buyback announcement pulled yields down, before giving back more than half that move the next day; over the trailing month the yen is up about 2.5%, though USD/JPY remains about 8% higher over 12 months. Bessent said the earlier intervention had countered disorderly yen movements, and Japan's Finance Ministry said it "will not hesitate to conduct further joint intervention" — a pledge from early August, not reconfirmed this session. Next: Japan's Leading Economic Index Tuesday, then Tokyo CPI Thursday.

Markets are closed for the weekend; the next session opens Monday. Immediate focus is the US-Canada tariff deadline (midnight ET Saturday) on Canadian goods, with talks described as 'ongoing' as of Friday's close. Germany's Ifo Business Climate Index follows Tuesday, alongside Japan's Leading Economic Index; Tokyo CPI and Japan's unemployment rate are due Thursday, as is Canada's Current Account (Q2). Canada's GDP (Q2/June) is due Friday. The week's main event is the Fed's Jackson Hole Economic Symposium, August 27-29, where new Fed Chair Kevin Warsh delivers his first keynote as chair on Friday. Further out: the BOJ meets September 17-18, the ECB September 10, and the Bank of Canada September 2.