US FX WRAP: Dollar weighed by decline in long-end yields

USD was sold on Wednesday, weighed by the drop in long-end yields in response to the US Treasury announcing plans to increase the size of liquidity support buyback operations for longer-dated nominal coupon securities by at least double. The announcement marks a signal from the US Treasury of a willingness to step in and ease fears over rising long-end yields; however, given the increase only pertains for the remainder of this refunding quarter, further USD weakness may be limited. The initial USD weakness extended throughout the day and held, leaving DXY back at May levels of 98.84. Separately, FOMC Minutes sparked little reaction. The Minutes highlighted what Fedspeak has pointed towards in recent weeks: Most participants assessed higher rates would likely be necessary if inflation did not fall. Meanwhile, Chair Warsh made the case that six scheduled meetings per year instead of eight would allow more information to accumulate between meetings; no final decision was made.

CHF, NZD and EUR were the top gainers vs USD, with AUD seeing some relative underperformance, albeit still notably firmer against the Greenback. GBP/USD had a muted reaction towards UK CPI, which saw the headline match expectations while core came in hot. Ultimately, the release doesn't alter the BoE's expected policy path of holding rates through year-end. ING notes the BoE's core services measure of inflation has picked up a little to 3.8% Y/Y, which, while hotter, shouldn't be too much to encourage those on the fence for tightening.