Forex week in review 34/2026: a Treasury buyback surprise sinks the dollar and lifts gold

For four weeks the story in these recaps has been about interest rates and intervention: a yen at a 40-year low, a Fed split over hiking, joint US–Japanese yen buying, and a rapid swing in rate expectations after weak payrolls and retail sales. This week a different kind of policy moved the dollar. On Wednesday the US Treasury said it would at least double the size of its buybacks of long-dated government bonds. The dollar index fell to a three-month low, gold jumped more than 3% in a day, and by Friday the euro was near a three-month high and sterling close to a six-month high against the dollar.

The interesting part is how markets interpreted the news. A policy designed to calm the bond market was read by many investors as a sign of fiscal strain. That is a useful lesson in how currencies respond to perceptions of a country’s finances, not only to its interest rates.

The week at a glance

• EUR/USD +0.86% to 1.1678, touching 1.1715.
• GBP/USD +0.77% to 1.3648.
• USD/CHF −1.48% to 0.8008, after a low of 0.7949.
• USD/CAD −0.77% to 1.3763, its fourth weekly fall in a row.
• AUD/USD +1.18% to 0.7175.
• USD/JPY −0.12% to 158.94, little changed.
• COMEX gold futures +5.57% to $4,680.60.
• The dollar index (DXY) fell from about 99.67 to 98.80, according to Yahoo Finance data.
• US stocks fell: the S&P 500 lost 1.43% and the Nasdaq 2.05% on the week.

Weekly opens and closes come from Yahoo Finance hourly data. Your broker’s prices may differ slightly.

Day by day

Monday 17 August: Japanese growth misses, Canadian inflation beats

Japan’s preliminary Q2 GDP grew 0.3% on the quarter against 0.5% expected, according to RTTNews. Weaker growth makes it harder for the Bank of Japan to raise rates quickly, which is one reason the yen remained under pressure despite the intervention in late July.

In Canada, July CPI rose 3.0% year on year against 2.9% expected, up from 2.8% in June. Prices rose 0.5% on the month. The Bank of Canada’s preferred core measures firmed slightly, with CPI-trim at 1.9% and CPI-median at 2.0%, both a tenth above forecast. Gasoline prices were 25.7% higher than a year earlier, and airfares and travel tours jumped. investingLive reported that markets priced about a 70% chance of a Bank of Canada hike by December. A central bank more likely to hike usually supports its currency, and the loonie firmed through the week.

Tuesday 18 August: UK labour data

UK labour market figures put the unemployment rate at 4.9% for April to June, 0.1 percentage point lower than in the previous quarter and 0.2 points higher than a year earlier, according to the Scottish Government’s summary of the ONS data. FX markets were quiet, with EUR/USD holding a narrow range around 1.1580 and USD/CHF near 0.8120 for most of the day, according to Yahoo Finance data.

Wednesday 19 August: UK CPI, FOMC minutes, and the Treasury surprise

UK CPI for July rose to 2.9% from 2.6% in June, matching forecasts from Pantheon Macroeconomics and Deutsche Bank cited by MoneyWeek. Energy was the main upward driver: Ofgem’s price cap rose 13% on 1 July. For the Bank of England, which had three members voting for a hike in July, a rise in headline inflation is exactly the pass-through it warned about.

Then came the main event. The US Treasury announced it would raise the maximum size of its liquidity-support buybacks for longer-dated nominal securities from $2 billion to at least $4 billion per operation, starting in September and targeting 10-year and longer debt. A buyback means the Treasury repurchases existing bonds from the market, which adds demand for those securities and can push their yields down.

The reaction was immediate. According to investingLive, the 30-year yield fell almost 10 basis points, the dollar index slid about 0.8% to a three-month low, and gold rose more than 3%. USD/CHF dropped from around 0.8104 in the European morning to below 0.7970 by the US close, according to Yahoo Finance hourly data. The Canadian dollar rose to new highs for the move after Trump said the US and Canada had reached a deal, “still subject to finalization of documents”. The 50% tariffs that had been due to start that day were given a three-day delay, according to CNN.

The FOMC minutes from the July meeting were released the same afternoon. Most participants had supported holding rates, several favoured a hike, and many said higher rates could become necessary if inflation did not fall. investingLive noted markets mostly ignored them because the soft payrolls and CPI data released since had made them stale.

A 20-year Treasury auction cleared at a high yield of 5.204%.

Thursday 20 August: digesting the news

Markets spent Thursday digesting the buyback news. In the European session the US 10-year yield rose back to about 4.69% and spot gold slipped 1.1% to around $4,469 after briefly trading above $4,500, which helped the dollar recover from its lows, according to investingLive. USD/CHF stayed below 0.80.

Friday 21 August: fiscal worries, PMIs and beef

In Asian trading the dollar came under fresh pressure. investingLive’s Asia report said investors viewed the expanded buybacks as a “temporary fix rather than a genuine resolution” to fiscal concerns, noting that US government debt had topped $40 trillion. Bessent said he might expand repurchases further, and he and budget director Russell Vought were to lead a fiscal consolidation effort. The euro rose to near a three-month high, sterling neared a six-month peak, and the Australian dollar reached a two-and-a-half-month high.

US flash PMIs for August were mixed: manufacturing slipped to 53.2 against 53.9 expected, while services jumped to 56.8 against 54.0 expected, lifting the composite to 56.0. Euro-area consumer confidence came in at −15.5 against −16.3 expected. Canadian retail sales rose 0.6% in June against 0.4% expected.

Trump said the US would allow up to 300,000 metric tons of additional ground beef to be imported over 90 days without triggering the 26.4% out-of-quota tariff, which investingLive described as an apparent reversal. Spot gold rose about 1.9% to around $4,603, and the Swiss franc was the only major to weaken against the dollar on the day. US 10-year yields rose to about 4.74%, up 4.4 basis points on the week.

Pair by pair

EUR/USD: from range to trend

EUR/USD rose 0.86% to 1.1678, touching 1.1715. Since the Fed meeting in late July, the pair has climbed from the bottom of its old range near 1.1360 to above 1.1700. The euro did not need good euro-area news; the move was mostly about the dollar. Our guide to trend following and moving averages covers how traders define a trend and why it is only clear in hindsight.

GBP/USD: higher inflation, higher pound

Sterling rose 0.77% to 1.3648. UK CPI rising to 2.9% kept a Bank of England hike in play, which supported the pound alongside the weaker dollar.

USD/CHF: the franc as the anti-dollar

USD/CHF fell 1.48% and broke below 0.80, its biggest weekly fall in this series. When investors question a reserve currency’s fiscal standing, the franc tends to benefit as an alternative store of value, even though Swiss interest rates are at zero. Compare that with late July, when the franc weakened because rising global yields made a zero-yielding currency less attractive. Same currency, opposite reaction, different driver.

USD/CAD: four weeks of loonie strength

USD/CAD fell 0.77% to 1.3763 and traded as low as 1.3728. Hotter Canadian inflation, rising oil prices (Brent futures rose from about $88.52 to $94.39 on the week, per Yahoo Finance) and the tentative trade deal all helped.

AUD/USD: the best performer

The Aussie rose 1.18% to 0.7175. A weaker dollar, firm commodity prices and an RBA that has kept hikes on the table were all supportive.

USD/JPY: the exception

USD/JPY slipped just 0.12% to 158.94. The yen did not benefit from the dollar’s weakness because Japanese growth disappointed and the rate gap remained wide. When the dollar falls against everything except the yen, it tells you the yen has its own problem.

Gold: the debasement trade

COMEX gold futures rose 5.57% to $4,680.60, their second weekly gain of more than 5% in three weeks. investingLive described gold’s outsized reaction to a small change in buyback size as a sign that the market was already positioned for “debasement”, the idea that persistent deficits erode a currency’s purchasing power over time.

Why a bond buyback weakened the dollar

At first glance, a Treasury buyback should be neutral or even positive for the dollar: it supports the bond market and lowers long-term borrowing costs. So why did the dollar fall?

There are two channels. The first is mechanical. Lower long-dated yields narrow the gap between US and foreign yields, which reduces the incentive to hold dollars. On Wednesday the 30-year yield fell almost 10 basis points while European yields did not, so the gap narrowed.

The second is about signalling. When a government steps in to hold down its own borrowing costs, investors ask why. With a record monthly deficit and debt above $40 trillion, many concluded that the Treasury was worried about how much it would cost to fund future deficits. That perception pushed some investors towards assets outside the dollar system, such as gold and, according to investingLive, bitcoin. Once long-dated yields started rising again on Thursday and Friday, the first channel faded but the second remained.

This is why currency analysis cannot be reduced to “higher rates, stronger currency”. Rates rose at the end of the week, and the dollar still fell. Our guide to central banks and interest rates explains the rate channel; the fiscal channel sits alongside it.

A worked example: how a weaker dollar changes a gold position

Gold is priced in dollars, so moves in the dollar and gold often amplify each other. Here is an illustrative example using a gold CFD where one contract equals 100 troy ounces.

Suppose a trader bought one contract at $4,433.70, Monday’s open in this week’s futures data. Each $1 move in the gold price equals $100 on the position. By Friday’s close at $4,680.60, the gain was $246.90 per ounce, or $24,690. The notional value of the position was about $443,000. Under ESMA rules, retail leverage on gold is capped at 20:1, so the initial margin would have been about $22,170.

Now flip it. A trader short the same contract would have lost $24,690, more than the initial margin. With the 50% margin close-out rule, the broker would have closed the position well before the full loss, but the account would still have taken a large hit. Negative balance protection means an EU retail client cannot lose more than the account balance, but that is not much comfort if the balance is gone. Our guides on margin calls and stop-outs and ESMA leverage limits go through the mechanics, and position sizing shows how to keep a single trade from dominating an account.

What this week teaches

• Fiscal policy moves currencies too. A Treasury decision, not a central bank decision, drove the biggest dollar move of the week.
• The same news can be read two ways. Buybacks were meant to reassure; many investors read them as a warning sign.
• Safe-haven roles depend on the driver. The franc weakened in July on rising yields and strengthened this week on fiscal worries about the dollar.
• A pair is always two stories. USD/JPY barely moved because Japan’s weak growth offset the dollar’s weakness.
• Correlated assets compound risk. Long gold and short dollar positions can look like two trades but behave like one. Our guide to risk-reward ratio and our trading psychology guide cover why concentration matters.

Scheduled next week (24–28 August)

Events on the calendar, listed for planning only:

• Monday 24 August: US Treasury Secretary Bessent update on Iran sanctions; Chicago Fed National Activity Index (July).
• Tuesday 25 August: RBA minutes (August meeting); German final Q2 GDP; German Ifo survey (August).
• Wednesday 26 August: Australian monthly CPI (July); US PCE inflation (July); US Q2 GDP second estimate; Nvidia earnings after the US close.
• Thursday 27 August: Jackson Hole Economic Policy Symposium opens (27–29 August); Bank of Korea decision; ECB account of the July meeting.
• Friday 28 August: Fed Chair Kevin Warsh speaks at Jackson Hole (10:00 New York time); Tokyo CPI (August); French and Spanish flash CPI; Canadian GDP; final University of Michigan sentiment (August); BLS preliminary annual benchmark revision to payrolls.

Our guide to using an economic calendar explains how to read these events in your own time zone.

For how we got here, read last week’s recap on CPI, retail sales and fading Fed hike bets and the earlier recap on the joint yen intervention.

Sources

• investingLive Americas FX news wrap, 19 August 2026
• investingLive: gold’s oversized reaction to Treasury buyback reflects debasement trade
• investingLive: USD slammed in Asia Friday as investors hedge against US fiscal credibility concerns
• investingLive Americas FX news wrap, 21 August 2026
• investingLive European markets wrap: gold runs higher, dollar stays under pressure
• investingLive: Canada July CPI 3.0% y/y vs 2.9% expected
• RTTNews: Japan GDP adds 0.3% in Q2
• MoneyWeek: UK inflation rises to 2.9%
• Scottish Government: Labour Market Trends, August 2026
• CNN via KEYT: US–Canada trade war reignites as talks fail at last minute
• Newsquawk Week in Focus, 24–28 August 2026
• Yahoo Finance USD/CHF historical data