USD: Dollar weakness exposes US policy premium
The dollar remains near three-month lows even as US real yields climb. The 10-year real yield has risen about 70 basis points from its 18-month low, while DXY has fallen to around 99. In earlier cycles, this yield move would have produced a stronger dollar. Instead, investors are demanding higher returns to hold US assets because fiscal pressure and policy intervention have weakened confidence in the Treasury market’s signal.
The latest Treasury buyback announcement reinforced that disconnect. Doubling long-end purchases from September 9 briefly lowered yields, but the 30-year yield soon reversed much of the decline. Buybacks can improve liquidity in selected securities, but they cannot remove heavy duration supply or create lasting demand. Repeated efforts to contain borrowing costs also make it harder to judge whether higher yields reflect strong US growth or greater policy uncertainty.
The fixed income market is raising estimates of the long-run neutral policy rate as growth stays resilient, inflation remains firm and the Fed keeps rate cuts off the table. A neutral rate near 3.7% would place fair value for the 10-year yield around 4.7% to 4.9%. Current yields are therefore approaching fair value rather than showing a clear overshoot, while fiscal risks remain only partly priced.
The buyer base is also becoming less supportive. Rising Japanese yields give domestic investors a stronger reason to repatriate capital instead of owning Treasuries with currency and hedging risk. At the same time, large deficits and limited political support for fiscal restraint point to continued US debt growth. Higher yields increasingly represent compensation for supply, fiscal risk and policy uncertainty, so they provide less support for the dollar.
Trade and geopolitical tensions add further crosscurrents and narrative volatility. The collapse of US-Canada trade talks threatens regional growth, while tougher Iran sanctions could lift oil prices and oil-linked dollar demand. The PCE report on Wednesday and Jackson Hole on Friday may decide whether DXY breaks below 98.80 or recovers toward 100. Until the US policy premium narrows, however, rallies toward 100 should remain tactical and vulnerable to reversal.
EUR: EUR/USD consolidates below 1.17 ahead of Jackson Hole
The euro has been consolidating against the dollar just below 1.17 after breaking through 1.16 last week on broad-based dollar weakness. Debasement-trade chatter, with the dollar increasingly viewed as the long-term victim, has intensified following Treasury Secretary Scott Bessent’s announcement of an expanded Treasury buyback programme aimed at easing pressure on long-end yields.
We do not expect EUR/USD to stray far ahead of the Jackson Hole symposium later this week. Warsh’s keynote will be closely scrutinised at a time when the new leadership’s inflation-fighting credentials are under the microscope. That said, markets may be hoping for clarity that never comes. Warsh has been clear about scaling back forward guidance and, beyond reiterating the Fed’s commitment to containing inflation, which he has already done, we do not expect much new from him. In that sense, the event is likely to leave markets unsatisfied and could prove dollar-negative.
The bigger question is how long it takes markets to adjust to this new policy framework, and what it ultimately means for the dollar as its credibility comes under renewed scrutiny.
Elsewhere, escalating US-Canada trade tensions (see USD section) have pushed EUR/CAD to a three-week high, although the cross remains broadly confined to its 1.60-1.62 range in 2026.
CHF: Fiscal fears boost the franc
Renewed concerns over the US debt burden have revived one of the standout winners of the 2025 de-dollarisation trade: the Swiss franc. The currency took a back seat in the first half of 2026 as the Middle East conflict eroded its safe-haven appeal, given Switzerland’s dependence on imported energy and its relatively small size in absorbing external shocks. But when concerns about fiscal sustainability and policy credibility resurface, with the dollar increasingly cast as the main casualty, the franc tends to regain its shine.
USD/CHF fell 1.5% last week after the sharp dollar sell-off on 19 August, though it has since clawed back part of those losses. It still looks too early to call for a sustained CHF rally. Geopolitical risks remain elevated, suggesting that higher oil prices should continue to cap the franc’s upside.
Nonetheless, the franc may still have scope for near-term gains as investors receive fresh updates on the Treasury’s plans to address elevated borrowing costs and, most importantly, hear from Fed Governor Warsh in the coming days.
Market snapshot
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Calendar: August 24-28
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
