ING strategists Chris Turner, Francesco Pesole, and Frantisek Taborsky argued on Friday that recent US Treasury buy-backs are primarily a signalling tool against high yields, pointing to a softer US dollar in a risk-friendly environment. The team’s analysis suggests the Federal Reserve’s bond purchases are aimed at capping long-term yields rather than injecting liquidity, a nuance that carries direct implications for currency markets.
According to ING, the dollar’s bias remains tilted to the downside as global risk appetite improves. The buy-backs, which have been a recurring theme in Treasury markets since mid-2025, are seen as a deliberate policy signal to keep borrowing costs in check without resorting to full-scale quantitative easing.
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What the Treasury Buy-Backs Signal
The US Treasury’s buy-back program, revived in 2025 after a two-decade hiatus, allows the government to repurchase outstanding securities to manage the maturity profile of its debt. ING interprets the recent acceleration of these operations as a response to rising long-term yields, which had threatened to tighten financial conditions.
“The buy-backs are a tool to smooth market functioning and signal a ceiling on yields,” the ING analysts wrote. “This reduces the dollar’s yield advantage, especially against currencies where central banks are maintaining or raising rates.” The firm noted that the effect is more pronounced in a risk-on environment, where investors are more willing to move capital into higher-yielding assets outside the US.
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Pro-Risk Flows Weigh on the Greenback
ING’s outlook aligns with broader market trends. As global equities and commodities rally, the dollar often weakens because investors seek higher returns elsewhere. The analysts pointed to a combination of factors supporting this view: easing inflation pressures, resilient corporate earnings, and a Federal Reserve that appears reluctant to tighten policy further.
“We see the dollar staying soft in the near term, with EUR/USD and other majors benefiting from the risk-on tone,” the note added. The firm’s forecast suggests that any rebound in the dollar would likely be limited unless risk sentiment deteriorates sharply or the Fed surprises with a hawkish pivot.
What This Means for Traders and Investors
For currency traders, the takeaway is that the dollar’s weakness may persist as long as risk appetite holds. This could favour long positions in currencies like the euro, British pound, and commodity-linked currencies such as the Australian and Canadian dollars. Emerging market currencies, which typically suffer when the dollar strengthens, could also find support.
However, ING cautions that the buy-backs are not a one-way bet. “If inflation surprises to the upside, the Fed may need to signal higher rates for longer, which would undercut the softer dollar narrative,” the analysts noted. They also highlighted that the effectiveness of buy-backs as a signalling tool depends on the scale and frequency of operations, which remain uncertain.
The broader implication is that US fiscal policy is increasingly intertwined with monetary policy. By using buy-backs to manage yields, the Treasury is effectively coordinating with the Fed to keep financing costs low, a strategy that could have long-term consequences for the dollar’s status as a reserve currency.
As the market digests these signals, the next key data points will be the US inflation report due in September and the Federal Reserve’s policy meeting. ING’s team will be watching whether the Treasury expands its buy-back program, which would reinforce the softer dollar bias. For now, the risk-friendly environment appears to be the dominant force in currency markets, keeping the greenback on the defensive.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Currency markets are volatile and forecasts may not materialise. Always conduct your own research before making trading decisions.
