The U.S. Treasury Department’s unexpected expansion of its long-dated bond buyback program triggered a sharp decline in Treasury yields and pushed the US Dollar Index below the 99 threshold, as Asian currencies mounted a broad counteroffensive. The yuan continued to strengthen against the dollar on Friday, with both onshore and offshore yuan hitting their highest levels since early February 2023—a more than 42-month high—though selling pressure near the 6.72 level has emerged, making the question of whether a decisive breakout can be achieved in the near term a key market focus.
The U.S. Treasury’s expansion of long-bond buybacks was originally intended to lower yields and stabilize the bond market, but it unexpectedly deepened market concerns about fiscal deficits and policy intervention. Investors broadly believe that buyback measures can only temporarily influence the yield curve and do little to address the fundamental debt supply problem. As a result, capital accelerated its exit from the dollar, rotating into Asian and other non-dollar currencies.
The US Dollar Index last traded at 98.763, extending its decline by 0.13% after two consecutive days of sharp 0.89% drops. The intraday low of 98.557 touched on August 20 marked the weakest level since May 14, a more than three-month low. Amid the dollar’s collapse, the South Korean won surged approximately 1% intraday against the dollar, breaking through an 11-month high to become the leader of this round of Asian currency strength, pulling the yuan, Taiwan dollar, Japanese yen, and other regional currencies higher in tandem.
The People’s Bank of China set the yuan’s central parity rate slightly weaker by 0.01% to 6.7817 on Friday, pulling back from the near 43-month high of 6.7808 set the previous day. However, the marginal adjustment in the fixing did not impede the yuan’s spot-market rally. The onshore yuan (CNY) last traded at 6.7235, adding 0.02% after two consecutive days of sharp 0.29% gains, having touched 6.7219 in early trading—its highest level since early February 2023. The offshore yuan (CNH) traded at 6.7233, rising another 0.03% after two straight days of 0.31% gains, with the previous day’s touch of 6.7201 also representing a more than 42-month high.
Year-to-date, the onshore yuan has appreciated approximately 3.93%, making it the strongest-performing currency in Asia, while the offshore yuan has gained 3.75%. The narrow spread between onshore and offshore rates indicates that yuan buying pressure is strengthening simultaneously in both domestic and offshore markets, underscoring the significant momentum of capital inflows.
Foreign exchange traders noted that while both onshore and offshore yuan continue to benefit from dollar weakness and the broader Asian currency rally, visible selling pressure has emerged near the 6.72 level. Without stronger exporter settlement demand or further foreign capital inflows, a decisive break above that level in the near term will remain challenging. The market is also closely watching the People’s Bank of China’s stance as the exchange rate approaches the 6.70 zone, particularly whether it will use the central parity rate or liquidity operations to slow the pace of appreciation.
As for the Taiwan dollar, Thursday saw volatile trading amid a tug-of-war between bulls and bears, with intraday swings of nearly NT$0.13. The currency twice breached the NT$32.00 psychological level, hitting a low of NT$32.009 before Taiwan’s central bank stepped in during late trading to pull it back, ultimately defending the 31-handle. On Friday, the Taiwan dollar opened at NT$31.89 and, supported by the weaker dollar and gains in major Asian currencies, climbed to an intraday high of NT$31.84—a gain of nearly NT$0.10—before settling at NT$31.925 at midday, up NT$0.012, with turnover at the Taipei Forex Inc. reaching US$792 million (approximately NT$25 billion).
The Japanese yen also recovered to the 158 level against the dollar, with Asian currencies overall maintaining a firm tone. Market analysts noted that the Taiwan dollar’s recent movements have been heavily influenced by foreign investor flows, and whether the afternoon session sees another reversal will depend on foreign capital movements in and out of the market.
The Federal Reserve’s latest meeting minutes showed that a majority of policymakers believe further rate hikes may be necessary if inflation does not decline. Although the minutes carried a “hawkish” tone, recent data suggest inflation has not worsened, and with the labor market softening, rate futures markets actually reduced bets on additional hikes following the minutes’ release. Subsequently, the U.S. Treasury’s announcement of expanded long-bond buybacks pushed bond yields lower, and the US Dollar Index broke below the 99 threshold in response—serving as the key catalyst for this round of broad-based Asian currency strength.
Market participants noted that the dollar’s pullback reflects growing investor concerns about U.S. fiscal discipline. While expanded long-bond buybacks may help stabilize the bond market in the short term, they do not address the structural deficit problem. If market appetite for holding U.S. Treasuries continues to wane, the dollar could face deeper adjustment pressure, while Asian currencies may have room to extend their rebound.
However, some analysts cautioned that the yuan’s near-term gains have been substantial, with significant profit-taking sell orders accumulated in the 6.72 to 6.70 range. Moreover, the People’s Bank of China has historically favored two-way exchange rate fluctuations and sought to prevent one-sided appreciation expectations from becoming overly entrenched, suggesting the subsequent rally may turn more volatile. For the Taiwan dollar, attention should remain on foreign investor activity in Taiwan’s equity market—if foreign investors continue to sell Taiwanese stocks and repatriate funds, the Taiwan dollar’s upward momentum could be capped.
