US Dollar strength is likely to persist because Treasury buybacks alone won’t trigger a sustained decline without explicit Federal Reserve support to cap yields, according to OCBC Bank strategists Sim Moh Siong and Christopher Wong. In a note released this week, the strategists argued that the Dollar’s resilience is anchored in policy reality rather than speculative positioning.
The comments come as market participants debate the potential impact of the Treasury’s buyback program, which was reintroduced in 2025 after a two-decade hiatus. While some analysts have speculated that the program could pressure yields and weigh on the greenback, OCBC’s team pushed back on that narrative, emphasizing that the Fed’s stance remains the dominant driver.
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Why Treasury Buybacks Aren’t a Dollar Killer
The US Treasury’s buyback program is designed to improve liquidity in the bond market, particularly in off-the-run securities. However, OCBC’s strategists argue that the program’s scale is too small to meaningfully alter yield dynamics, especially if the Federal Reserve is not simultaneously easing policy.
“The buyback program is a liquidity management tool, not a monetary policy instrument,” the strategists wrote. “Without the Fed actively capping yields through rate cuts or balance sheet adjustments, the Dollar is unlikely to see sustained weakness from this channel.”
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This view aligns with the broader market reality: the Federal Reserve has maintained a cautious approach, with policymakers repeatedly signaling that they are in no rush to cut rates. The central bank’s focus on inflation data, which remains above its 2% target, has kept the door open for further tightening if needed.
Fed Policy and Data Remain the Key Drivers
OCBC’s analysis underscores that the Dollar’s trajectory will be determined by the Fed’s reaction function to incoming economic data. Recent US economic indicators have been mixed, with a resilient labor market but softer manufacturing activity. This has kept the Dollar in a range, with the Dollar Index hovering near recent highs.
The strategists also noted that the Dollar’s resilience is supported by its role as a safe-haven currency, particularly in an environment of global uncertainty. Geopolitical tensions and concerns about growth in other major economies, such as the Eurozone and China, have continued to funnel capital into US assets.
“The Dollar’s status as the world’s reserve currency means it benefits from risk-off flows, which provides a floor under the currency even when domestic fundamentals are less supportive,” they added.
What This Means for Forex Traders
For forex traders, the OCBC note serves as a reminder not to overestimate the impact of Treasury buybacks. Instead, focus should remain on Fed communications and US data releases, which are more likely to drive sustained moves in the Dollar.
Key events to watch include the upcoming Federal Open Market Committee (FOMC) meeting and the next US inflation report. Any surprise in these data points could trigger a repricing of rate expectations, which would have a direct impact on the Dollar.
Additionally, the strategists highlighted that the European Central Bank‘s policy trajectory and the Bank of Japan’s stance will also play a role in shaping Dollar strength, as relative monetary policy expectations drive currency pairs like EUR/USD and USD/JPY.
While the Dollar’s resilience appears well-supported for now, OCBC cautioned that the outlook could shift if the Fed signals a more dovish path. As such, traders should remain flexible and responsive to evolving policy signals.
This article is for informational purposes only and does not constitute financial advice. The forex market is highly volatile and uncertain. Always conduct your own research before making trading decisions.
