Dollar's slide toward 90 hinges on breaking 95.55 support

DXY's slide has moved beyond Treasury buybacks, approaching levels that could turn a medium-term decline into a structural breakdown toward 90.

The dollar's selloff has moved beyond this week's Treasury buyback announcement, with DXY breaking below 99.41 and approaching 97.94, whose breach would threaten the multi-decade rising channel and open a path toward 90.

"It would be very bad if the Federal Reserve unnaturally forced interest rates down," Ray Dalio, founder of Bridgewater Associates, said, warning that artificially suppressing borrowing costs without addressing deficits simply postpones adjustment.

The Treasury on Aug. 19 raised maximum buybacks in the 10-20 year and 20-30 year sectors to at least $4 billion from $2 billion, after the 30-year yield briefly reached 5.34 percent, its highest since 2007. DXY has since broken below 99.41, the 38.2 percent retracement of the rebound from 95.55 to 101.80, with the 55-day EMA around 100.04 capping recovery. EUR/USD is pressing against 1.20, a region containing 1.2019, the 38.2 percent retracement of the long decline from 1.6039 to 0.9534.

A decisive break of 95.55 would threaten the dollar's multi-decade rising channel from the 2008 low, targeting 92.76 and eventually 89.29 near the psychological 90 level, while EUR/USD would likely challenge 1.20 and open the way toward 1.3554. Jackson Hole next week will test how Fed Chair Kevin Warsh defines the boundary between monetary policy and the Treasury's growing role in bond-market conditions.

Buybacks Move Supply, Not the Borrowing Need

UBS described the buybacks as reshaping debt maturity rather than reducing total Treasury supply markets must ultimately absorb. Unlike Federal Reserve quantitative easing, the Treasury cannot create reserves to buy bonds, so financing pressure is reallocated, not eliminated. Wellington Management's Brij Khurana made the same point independently, saying the Treasury needs to finance those purchases elsewhere, including through more bills. DBS economist Chang Wei Liang called the likely impact "small" and "transient."

Treasury bills already account for around 22.2 percent of outstanding Treasury debt, above the roughly 20 percent ceiling preferred by the Treasury Borrowing Advisory Committee. If more long-bond support is financed through additional short-term issuance, pressure is simply being moved along the curve. Treasury Secretary Scott Bessent, who in 2024 criticized Janet Yellen for relying heavily on bills, said buybacks could exceed $4 billion per issue and described liquidity in 30-year bonds as "very poor."

Fitch, which affirmed the US rating at AA+ with a stable outlook on Aug. 13, projects general government debt rising from about 117 percent of GDP at end-2025 to 123 percent in 2028 and 128 percent by 2030, against a 46.3 percent median for AA-rated sovereigns. The US general government deficit is projected at 7.4 percent of GDP in 2026, the highest in the AA category, with interest-to-revenue reaching 12.6 percent by 2028 versus a 3.5 percent peer median. Federal debt has moved above $40 trillion, with a fiscal-year-to-date deficit of about $1.8 trillion and net interest payments near $963 billion over the first ten months.

The Technical Test That Decides the Dollar's Path

DXY's weekly chart shows the decline from 110.17 remains incomplete, with the index below the 55-week EMA around 99.71. A break through 95.55 would resume that fall and target the 92.76 projection. On the monthly chart, DXY has again failed to sustain above the 55-month EMA around 100.57; a break of 95.55 would threaten the multi-decade rising channel from the 2008 low, making 89.29 an important longer-term downside objective.

Bessent's counterargument is that the deficit has likely peaked and the US can "grow our way out" of the $40 trillion debt figure, with a Treasury-OMB effort examining "several hundred billion dollars" of potential fiscal consolidation. But markets need evidence rather than promises: if the deficit has peaked, future budget numbers should show it, and if the US can grow out of the debt problem, nominal GDP needs to expand quickly enough relative to debt to stabilize fiscal ratios.

Jamie Dimon has warned that prolonged high debt and expensive money could expose leverage hidden inside special vehicles and securitized structures. These are not forecasts of an imminent crisis but warnings about second-order risk: when sovereign borrowing costs stay high long enough, stresses migrate into places not obvious during earlier stages of the cycle.

A break of 97.94, followed by 95.55, would turn the current bearish setup into a much more serious structural signal. Holding 95.55 would leave the decline within a broader range, while EUR/USD would simultaneously be positioned for another attack on 1.20. Treasury can rearrange duration and buy time; the question is whether Washington can use that time to change the fiscal trajectory before the dollar prices a much bigger adjustment.

This article is for informational purposes only and does not constitute investment advice.