US Treasury Buybacks Drive Yields and USD Lower - CPT Markets

Market Wrap-up: US Treasury Buybacks Push Yields Lower, USD Slips

A sharp reversal across global markets followed the previous session's Treasury selloff. On Wednesday, the US Treasury announced that it would more than double the size of its government bond buyback operations, triggering a rapid repricing across rates and the dollar.

The move pushed the US 10-year Treasury yield down 6 basis points to 4.647%, while the 30-year yield fell 9 basis points to 5.196%. Lower yields and a weaker dollar provided a strong tailwind for gold, which jumped 3.4% to $4,479.84/ounce. By early Asian trading today, gold had moved above the $4,500/ounce threshold.

The softer rate backdrop also eased pressure on Wall Street after several sessions of rising funding costs. The S&P 500 gained 0.21%, the Nasdaq Composite edged up 0.16%, and the Dow Jones rose 0.22%.

The Treasury action effectively overshadowed the July FOMC minutes, which had been the main event for the session. The minutes showed policymakers still viewed inflation as elevated, with three officials supporting a rate hike. However, traders largely treated the minutes as backward-looking, given the softer inflation readings and weaker employment data released since the meeting.

In energy markets, oil remained elevated. Brent crude rose 0.7% to settle at $91.62 per barrel, while US WTI gained 1% to $85.83. The move came as developments involving the UAE and Iran added to geopolitical uncertainty in the Middle East.

Looking ahead, today's economic calendar is lighter and markets may need time to digest the sharp moves seen in the previous session. Still, the Philly Fed Manufacturing Index, Unemployment Claims and CB Leading Index will remain in focus.

XAU/USD: Gold Jumps as Lower Yields and USD Weakness Lift Demand

Key takeaway:

• Gold surged more than 3% on August 19 as the Treasury's surprise expansion of bond buybacks drove US Treasury yields and the dollar sharply lower, ahead of the July FOMC minutes.
• TD Securities said the Treasury's decision to expand its bond buyback operations to support liquidity provided fresh momentum for the metals market.

Technical Outlook:

• Daily Bias: Bullish with Correction Risk
• Support: 4,471
• Resistance: 4,527

Oil: WTI Gains Amid Renewed Middle East Uncertainty

Key takeaway:

• WTI rose more than 1% as developments involving the UAE and Iran added to geopolitical uncertainty in the Middle East.
• Shipping through the Strait of Hormuz remained slow, with most vessel owners continuing to avoid the route amid no clear signal on when it will reopen.
• Trump said Washington is not holding talks with Iran and claimed Hormuz is open, while Iran maintains that the strait remains closed.

Technical Outlook:

• Daily Bias: Bullish with Correction Risk
• Support: 83.77
• Resistance: 85.85

DXY: Treasury Buybacks Pressure the Dollar

Key takeaway:

• DXY fell sharply after the US Treasury doubled the size of its bond buyback operations, pushing Treasury yields lower and weakening the dollar.
• The July FOMC minutes failed to reverse the move. Policymakers still viewed inflation as elevated and three officials backed a rate hike, but traders considered the minutes stale as softer inflation and weaker jobs data have emerged since the meeting.

Technical Outlook:

• Daily Bias: Bearish with Rebound Potential
• Support: 98.76
• Resistance: 99.29

EUR/USD: Euro Rises as Eurozone Inflation Exceeds ECB Target

Key takeaway:

• The euro strengthened against the dollar as the Treasury buyback announcement triggered broad USD selling.
• The pair also drew support from eurozone annual inflation rising to 2.9% in July, above the ECB's 2% target.
• ECB Chief Economist Philip Lane warned that conflict with Iran could keep 2026 inflation around 3%, reinforcing the inflation risk from geopolitical developments.

Technical Outlook:

• Daily Bias: Cautiously Bullish
• Support: 1.16140
• Resistance: 1.16837

USD/JPY: Yen Strength Limited by Wider Japanese Trade Deficit

Key takeaway:

• Japanese Yen strengthened as the dollar weakened following the Treasury's action, although gains were capped by a widening Japanese trade deficit and elevated import costs.
• Japan's trade balance showed the deficit widening sharply to 634.5 billion yen in July from 409.9 billion yen in the prior month.
• The deficit was narrower than the forecast of 680.0 billion yen but marked a third consecutive monthly deficit and the largest since January, as import growth outpaced exports.

Technical Outlook:

• Daily Bias: Neutral
• Support: 158.00
• Resistance: 158.84

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