The US dollar came under strong pressure on Thursday, August 20, 2026, as traders reacted to a major move from the US Treasury. The dollar fell to a three-month low against the euro before it recovered part of its loss later in the day.
EUR/USD rose as high as 1.1710, its strongest level since mid-May. The pair later moved back toward 1.1678, but the early move showed how fast the foreign exchange market can react to a change in US bond policy.
The main reason behind the dollar move was a surprise decision from the US Treasury. The department said it would double the size of some buybacks of long-term US government debt. The plan covers Treasury securities with maturities from 10 to 30 years.
The size of each operation will rise to at least $4 billion. The move aims to support the market for long-term US government bonds and reduce pressure on long-term borrowing costs.
Why the Treasury Move Matters
US Treasury bonds play a major role in global financial markets. Their yields affect borrowing costs, investment decisions and currency values across the world.
Before the Treasury announcement, long-term US bond yields had risen sharply. The 30-year Treasury yield reached 5.337% earlier this week, its highest level in 19 years. It later fell to about 5.22% after the Treasury announced the larger buybacks.
The rise in long-term yields had raised concern about the health of the US bond market. Investors had also focused on the size of US government debt and the wider fiscal position of the country.
The Treasury move sent a clear message to the market. US officials want to reduce pressure in the long end of the bond market and improve market liquidity.
That first pushed bond yields lower. It also hurt the dollar because traders saw the policy as a sign that the US government may accept a softer dollar as part of a wider effort to calm financial markets.
EUR/USD Jumps Above 1.17
The euro was one of the biggest beneficiaries of the dollar selloff. EUR/USD climbed to 1.1710 during the day. That was the highest level for the pair since May 14.
The pair later eased. At one point, EUR/USD traded near 1.1686, while the dollar recovered some ground after US economic data gave the currency fresh support.
The European Central Bank also lists its August 20 reference rate at EUR 1 = USD 1.1681. That was a sharp move from the August 19 reference rate of 1.1605.
The move shows that the euro does not need a major positive surprise from Europe to rise. A sharp fall in the dollar can be enough to push EUR/USD higher.
For currency traders, this makes the US bond market a key factor for the euro-dollar pair.
The Dollar Index Also Falls
The weakness was not limited to EUR/USD. The US Dollar Index fell to 98.558, its lowest level since May 14.
The index later recovered some ground. Reuters reported that it stood near 98.82 after the first wave of dollar selling faded.
The move shows that the market reaction was broad. The dollar lost value against several major currencies rather than only the euro.
Sterling also rose on Thursday. GBP/USD climbed about 0.4% to $1.3661, its highest level since February 16. The British pound received support from both dollar weakness and fresh expectations about UK interest rates.
This wider move across major currencies suggests that the Treasury decision had a direct effect on global FX sentiment.
Why Traders Sold the Dollar
The dollar usually gets support when US Treasury yields rise. Higher yields can make US assets more attractive because investors can earn more from dollar-based bonds.
The latest move created a different situation.
The Treasury acted to support long-term bonds after a sharp rise in yields. That reduced some of the immediate pressure in the bond market. At the same time, it raised questions about the future supply of dollars and the US government’s approach to its debt market.
That combination hurt the dollar.
Chris Turner, ING’s global head of markets, said the Treasury action could remove one of the unexpected risks from the bond market. He also described the move as slightly negative for the dollar.
The market reaction was therefore not simply about interest rates. It was also about confidence in US financial policy.
US Economic Data Gives the Dollar Some Support
The dollar did not stay under heavy pressure for the entire session.
US initial jobless claims came in at 206,000 for the week ended August 15. That was below the market forecast of 210,000 and also below the previous revised figure of 212,000.
The stronger labour data gave the dollar some support later in the session. EUR/USD moved lower from its 1.1710 peak as US Treasury yields also moved back up.
This part of the session is important because it shows that the dollar story is not one-sided.
The Treasury decision pushed the currency lower, but stronger US data can still limit the decline. Traders now have to balance the bond market, US economic data and Federal Reserve policy expectations.
Fed Policy Remains Important
The Federal Reserve remains another major factor for the dollar.
The latest Fed meeting minutes showed concern about persistent inflation. The market also expects the Federal Reserve to keep rates unchanged at its next meeting, while expectations for the European Central Bank point toward another rate increase later this year.
That difference can support the euro if traders believe European rates will stay higher relative to US rates.
At the same time, a stronger US economy could limit the dollar’s decline if it keeps pressure on the Federal Reserve to maintain a firm policy.
This creates a difficult setup for EUR/USD. The pair has strong upward momentum, but further gains may depend on fresh evidence that the dollar remains under pressure.
What Comes Next for EUR/USD
The move above 1.17 is important because the level has clear market value. EUR/USD had already gained ground before Thursday’s Treasury news. The latest move pushed the pair to a new three-month high.
Still, the dollar has shown that it can recover quickly.
The pair fell back from 1.1710 after US jobless claims beat forecasts and US Treasury yields moved higher. FXStreet reported that EUR/USD traded around 1.1686 later in the session.
For traders, the next question is whether EUR/USD can hold above the 1.17 area or whether the dollar can regain more of its recent strength.
A sustained move above 1.17 would show that the euro has kept its latest momentum. A return below that area could suggest that Thursday’s dollar selloff was partly a short-term reaction to the Treasury announcement.
The Bigger Forex Picture
The events of August 20 show how closely the foreign exchange market is linked to the US bond market.
The dollar’s three-month low did not come from a single European economic report. Instead, the main trigger was a US policy decision tied to long-term government debt.
The Treasury will increase some buyback operations to at least $4 billion per operation, with the plan aimed at the 10- to 30-year part of the Treasury market. The action came after a sharp rise in long-term yields and concern about the wider US fiscal picture.
For now, the dollar remains vulnerable. EUR/USD reached 1.1710, the dollar index fell to 98.558, and sterling reached $1.3661.
But the session also showed that dollar weakness can fade fast. US jobless claims were stronger than expected, Treasury yields moved higher again, and EUR/USD gave back part of its early gain.
The next major test for the dollar will come from US bond yields, Federal Reserve signals and the upcoming Jackson Hole speech. Traders will watch those events closely to see whether the August 20 dollar selloff marks the start of a larger trend or only a short-term reaction to the Treasury’s surprise move.
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