- Bessent boosts buy-backs. US Treasury Secretary Bessent’s decision to double liquidity buy-backs to $4bn from $2bn was small in size but large in signalling – policymakers are increasingly unwilling to tolerate higher borrowing costs.
- Sugar rush. Treasury yields at the long-end did fall almost 10 basis points on the day of the announcement, but much of the move had reversed within 24 hours.
- Sacrificial lamb. The US dollar suffered its weakest session in month, dropping 1.8% versus the Swiss franc, with the DXY hovering near three-month lows.
- Crypto comeback. Bitcoin’s near three-sigma surge was particularly telling, with the high-beta asset acting as a barometer of improving liquidity conditions and the pro-risk story.
- Debase debate. The cross-asset response points to questions over US policy credibility and suggests the debasement trade is creeping back into markets.
- Doom loop. The risk is that higher debt leads to higher yields, leads to higher interest costs, leads to more borrowing, which leads to higher yields, and so on…
- Record debt. Fiscal strain got another reminder as headlines crossed that US debt had topped $40 trillion, with a surge of a third in less than five years.
- Hawkward silence. The FOMC minutes failed to deliver a meaningful hawkish surprise, reinforcing the view that the Fed remains comfortable on hold for now.
- Jackson Hold? Coming up, more clarity from Fed Chair Warsh at Jackson Hole is needed, particularly after recent policy uncertainty and shifting rate expectations.
Global Macro
Bond-market stress forces Treasury intervention
Treasury steps in. The US Treasury will at least double its long-end liquidity-support buybacks from $2bn to $4bn per operation, targeting 10-to-30-year securities from September 9 through November 4. The announcement briefly drove the 30-year yield nearly 10bp lower from a 19-year high, but most of the decline reversed ending the week, showing that added liquidity cannot resolve the underlying fiscal, supply and inflation concerns.
Asia disappoints. Japan’s Q2 GDP rose 0.3% q/q vs 0.5% expected, as weak domestic demand offset support from exports. China also missed, with retail sales at 0.6% y/y vs 1.5% expected and industrial production at 4.5% vs 4.9% expected.
Inflation returns. Canadian CPI accelerated to 3.0% y/y vs 2.9% expected and 0.5% m/m vs 0.4% expected, mainly because of gasoline and travel costs, while CPI-trim and CPI-median remained contained at 1.9% and 2.0%. UK CPI also rose to 2.9% y/y, matching consensus but up from 2.6%, although services inflation eased to 3.4%. The headline rebound keeps both central banks cautious, but the core details stop short of signaling a renewed inflation surge.
US resilience. Industrial production rose 0.2% m/m vs 0.3% expected, but regional surveys were stronger, with Empire at 20.6 and Philadelphia Fed at 47.4 vs 22.5 expected. Claims remained low at 206k, keeping the US growth picture firm.
Hawkish holds. The FOMC minutes showed that many officials could support further tightening if inflation fails to slow, even though most backed the July hold. The Riksbank also kept its policy rate at 1.75%, as expected, warning that recent supply shocks could lift underlying inflation despite low measured inflation and high unemployment. Long-end yields thus remain caught between central-bank caution and growing fiscal pressure.
Week ahead
All eyes on Jackson Hole
Fed focus in Wyoming. Next week’s key event won’t be economic data, but the Jackson Hole symposium in Wyoming. Among the headline speakers, markets will be closely focused on Fed Chair Kevin Warsh. An event like this attracts particular attention when a new leader’s monetary policy philosophy is under the microscope.
Inflation’s next test. Next week brings the release of the Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred measure of inflation. Following benign CPI and PPI reports earlier this month, which eased pressure on the Fed to cut rates in September, markets will be watching closely to see whether this broader inflation gauge reinforces that narrative.
German sentiment check. Germany’s IFO Business Climate Survey is due next week. Despite lingering inflation concerns linked to higher energy prices and ECB tightening, business sentiment indicators have improved since early summer. The recent run of stronger macroeconomic data has provided encouraging evidence that improved sentiment is also translating into real economic activity.
FX views
A less clear-cut hawkish Fed story
USD Old fears, new triggers. The US dollar index (DXY) is down roughly 1% heading into the end of the week as investors reassess a shifting balance of risks. On the geopolitical front, the shift in US rhetoric toward economic pressure on Iran is effectively eroding what remains of the dollar’s safe-haven appeal. While oil prices have continued to grind higher, they remain well below the peaks seen at the height of the conflict, limiting support via the oil transmission channel. More importantly, a familiar longer-term narrative is re-emerging: the debasement trade. The Treasury’s recent interventionist actions and growing sensitivity to higher long-end yields have revived concerns around fiscal sustainability and institutional credibility, themes that weighed on the dollar through much of 2025. The key near-term catalyst is Jackson Hole next week, where markets will scrutinise Kevin Warsh’s communication for evidence of a sufficiently hawkish stance. Before then, PMIs and next week’s PCE inflation data are unlikely to materially alter the outlook. We expect DXY to remain in a 98-99 range, albeit with a modest downside bias heading into Jackson Hole.
EUR A higher euro, a murkier dollar. EUR/USD is on track to close more than 1% higher this week. The pair is flirting with three-month highs near 1.17, as the Fed hawkishness narrative, once a clear bullish support for the dollar, has become increasingly muddied. Investors are questioning both the hawkish credentials of the next Fed leadership and the broader US fiscal outlook. Yet we remain reluctant to chase a more sustained move toward 1.18 without clearer catalysts. The Jackson Hole symposium next week is the next key test. Support near 1.1620 should underpin this week’s bullish breakout. When institutional credibility comes back into focus, 2025’s winners tend to stage a comeback, and the Swiss franc is a prime example. EUR/CHF has tumbled 1% this week, hitting a two-week low. That said, unless energy prices begin to ease more meaningfully, we wouldn’t chase further downside in EUR/CHF from here.
GBP Beneficiary rather than a driver. Sterling is on track for a fourth consecutive weekly gain against the dollar, with GBP/USD extending above 1.36 to fresh six-month highs after decisively breaking through the 1.35 resistance level last week. The pair continues to trade comfortably above key daily and weekly moving averages, reinforcing the bullish technical backdrop. Options markets also reflect improving sentiment, with one-week GBP/USD risk reversals turning positive for the first time since January. However, the move is primarily a function of broad dollar weakness rather than sterling strength, following the US Treasury’s surprise buy-back announcement that has further undermined confidence in the greenback. UK economic data have been mixed and have done little to alter expectations for the BoE policy outlook. Reflecting sterling’s limited domestic support, performance across the rest of the G10 has been less convincing. GBP/EUR remains around 1.5% below its recent 1.18 peak, while GBP/CHF is down nearly 1% this week. Still, the low-volatility FX regime remains intact and, combined with a pro-risk backdrop, should continue to support sterling given its high-beta nature and relatively attractive yield profile.
CHF Funder vs haven. Switzerland’s near-zero interest rates, subdued inflation backdrop and the SNB’s tolerance for currency weakness continue to encourage investors to use CHF as a funding currency. Positioning data show speculative accounts adding franc shorts as carry traders increasingly favour CHF over JPY, given the growing risk of Bank of Japan intervention and further rate hikes. With Swiss rates among the lowest in the G10 and policymakers showing little appetite to tighten, the franc remains an attractive source of cheap funding. However, a competing bullish narrative has emerged. The franc has recently benefited from haven demand following Treasury Secretary Bessent’s buy-back announcement, sending USD/CHF 1.8% lower to test its 100-day moving average. While CHF’s funding-currency status argues for medium-term weakness, its safe-haven credentials remain intact, allowing it to attract intermittent support during periods of market uncertainty. The battle between these two forces is likely to dictate CHF performance in the weeks ahead.
CAD Trade hopes. USD/CAD is trading below 1.38, hitting its lowest levels since May 20, as reports of a possible US-Canada trade agreement add momentum to the Loonie’s recent macro-driven rally. Washington may reduce steel and aluminum tariffs to 25% and auto tariffs to 15%, although dairy, forestry and energy remain potential obstacles before the current pause expires Friday night. Relative rates are also helping, with the US-Canada two-year spread narrowing to roughly 116bp from 145bp in late July as Canadian inflation, employment and trade data improved. USD/CAD has now broken below the June low near 1.384, putting 1.3700 in view, followed by 1.35–1.36 if an agreement is signed. Failed talks would create room for a sharp reversal toward 1.40–1.41. Next week, all attention on Friday, with Q2 GDP, expected to come at 3.3% annualized pace.
AUD Aussie confidence improves. Australian households turned more upbeat for a second month running, with the confidence gauge lifting to 88.9 in August from 83.9. Mortgage holders led the pick-up after the RBA left rates on hold on 11 August. Caution lingers, though. Expectations for house prices sank to a three-year low, worries over personal finances held on, and the overall read still sits nearly 10% under where it stood a year ago, with job-loss fears creeping above trend. Beyond domestic factors, AUD/USD may also find support from a softer US dollar. Investors have become increasingly sceptical that recent US Treasury buyback measures can sustainably contain long-term borrowing costs, weighing on the greenback. Markets now price roughly a 57% chance of another RBA move higher by the close of 2026. For technicals, we watch support at the 21-day EMA (0.7062), then the 50-day EMA (0.7038), with resistance at 0.7200.
CNH Weak China data fuels stimulus hopes. China’s July figures pointed to a broad cooling, with factories and services both losing pace. Weaker though they were, some may read them as a positive, since they crank up the pressure on Beijing to lean harder on both spending and easier policy to prop up growth. Without a genuine bounce, third-quarter growth risks slipping further from the second, putting the annual target in doubt and sharpening the case for fresh action. USD/CNH keeps trading close to a three-year low. A push above the 21-day EMA (6.7473) could open the way to the 50-day EMA (6.7655), while next support sits at the 6.7100 handle.
JPY BOJ hike expectations grow. Tokyo is rattling the sabre again. A former currency official warned Japan could step back into the market at any moment, potentially alongside the US, if USD/JPY drifts back to pre-intervention territory. He argued the yen sits far too weak and is inflating import bills for homes and firms, and pressed for a September rate rise, floating a quicker climb towards 1.5%-1.75%. He added the government should not stand in the way of tightening or of fiscal discipline. Market is currently pricing in an 82% probability of a rate hike at the September meeting. USD/JPY has shed roughly 3% from its 23 July high of 163.99. We eye first resistance at the 21-day EMA (159.63), then the 50-day EMA (160.19). Meanwhile, CAD/JPY, EUR/JPY and NZD/JPY have pushed to three-week highs.
MXN A two-year low. USD/MXN is trading near 16.9 after reaching a fresh 52-week low of 16.9455, also its lowest in two years, supported by Treasury-driven dollar weakness and Mexico’s persistent carry advantage. Banxico’s second consecutive hold at 6.50% and a two-year yield premium of roughly 299bp over the US continue to reward peso exposure, while reserves near $257.4bn provide a solid external buffer. Renewed Iran tensions and higher oil prices have interrupted the move below 17.00, leaving the peso exposed to bouts of global risk aversion despite its constructive trend. A sustained break below 16.90 would bring 16.80 into focus, while crowded long positioning raises the risk of a quick reversal if US yields rebound or geopolitical stress worsens. Next week brings GDP Q2 final print, as well as bi-weekly CPI on Monday, and Thursday trade balance and labor market figures.
COP Rally stretched. USD/COP is trading near 3,074, pulling back from Wednesday’s eight-year low of 3,038 as long-end US yields rebound and higher oil prices weigh on Andean currencies. The peso has still appreciated 8.8% since July 1, supported by BanRep’s 12% policy rate, expectations for another hike and persistent demand for carry. Wednesday’s Treasury buyback announcement accelerated the move as falling US yields weakened the dollar, while BanRep’s planned $4bn reserve accumulation programme has so far done little to slow COP gains. Domestic risks now provide a sharper counterweight. The government’s 30-day economic emergency grants temporary authority to issue economic and tax measures following the earthquake, adding uncertainty to an already fragile fiscal outlook. Inflation is also projected to end 2026 at 6.9%, well above BanRep’s target, which supports high rates but raises the economic cost of keeping policy restrictive. USD/COP therefore remains in a strong downtrend, but the fading Treasury-buyback impulse, fiscal uncertainty and stretched valuation increase the risk of a correction. Consensus now points to 3,300 by year-end, suggesting some retracement from current levels even if the peso’s carry advantage remains intact.
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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.
