1.1700: Euro hits three-month highs as US Bond buyback plan crushes the US Dollar

Market impact: moderately bullish for EUR/USD, primarily through the US-dollar leg.

The Treasury’s decision to increase long-dated bond buyback operations from a maximum of $2 billion to at least $4 billion per operation is being interpreted as an effort to contain pressure in the long end of the US yield curve. That lowers the relative yield advantage of dollar assets and reduces the carry incentive for holding USD, helping explain EUR/USD’s move above 1.1700 and its reported 1.13% two-day advance.

The more important signal for FX is confidence-related rather than the immediate liquidity effect. A buyback program can improve Treasury-market functioning, but its introduction amid debt above $40 trillion may also reinforce concerns about US fiscal sustainability. That combination—lower long-term yields and greater sensitivity to US debt supply—can encourage foreign investors to reduce either Treasury exposure, dollar exposure, or both.

The bullish EUR/USD interpretation is strengthened by the fact that hawkish Federal Reserve minutes reportedly failed to arrest the dollar selloff. This suggests the market is currently assigning greater weight to falling long-end yields and fiscal risk than to the possibility of tighter Fed policy. If that pricing persists, the effect could extend beyond EUR/USD to broader dollar weakness, with potential support for gold and other non-dollar assets.

However, the move is not unambiguously euro-positive. The buybacks are scheduled to begin on September 9, 2026, so the initial reaction may reflect positioning and expectations rather than a durable change in Treasury-market liquidity. A rebound in US yields, stronger US data, or renewed expectations for Fed tightening could restore dollar demand. Conversely, weak euro-area data or a dovish ECB repricing would expose EUR/USD to a correction even if the dollar remains structurally vulnerable.

Trading implications:

the near-term bias remains dollar-negative and EUR/USD-positive, but follow-through depends on whether US long-term yields remain suppressed. Traders should monitor the 10- and 30-year Treasury yields, the dollar index, US labor-market data, Fed rate expectations, Treasury buyback details, and incoming Eurozone inflation and growth data. A failure of yields to decline further would weaken the current bullish currency narrative.