Euro resumes against dollar amid changes in US debt market

On the global currency market, the euro continues its noticeable recovery. On Friday, August 21, the EUR/USD pair is trading around 1.1690-1.1700 dollars, having risen even to 1.1710 yesterday. Over the past month, the euro has strengthened against the dollar by about 2.5%, and since mid-August, the pair's movement has become especially rapid.

The main reason for the latest surge was events in the United States. The decision of the US Treasury to increase the volume of reverse repurchases of long-term government bonds caused a decline in the dollar and a rise in demand for the euro. However, the situation subsequently partially changed: Treasury yields began to rise again, and the dollar was able to recoup some losses.

Nevertheless, the overall picture still remains favorable for the European currency.

To understand the dynamics of EUR/USD, it is important to remember a simple relationship.

US government bonds are one of the main instruments for investing capital in dollars. The higher their yield relative to European assets, the more attractive the American currency.

Conversely, if US bond yields decline, the dollar's advantage diminishes.

That is exactly what happened after the Treasury's announcement.

On August 19, the euro rose by about 0.78%, and the dollar weakened against most major currencies.

However, an interesting situation arose here.

Market participants quickly realized that the problem of the US debt market had not disappeared. Therefore, after the initial decline, Treasury yields began to rise again.

According to Reuters, by Friday the yield on 30-year US bonds was again around 5.25%, and 10-year — approximately 4.71%.

This means that the market has not yet fully believed in the effectiveness of the Treasury's actions.