The U.S. dollar tumbled to a three-month low against the euro on Friday, as investors grew increasingly uneasy that the Treasury Department’s aggressive bond-buyback gambit may end up punishing the very currency it is meant to protect.

Treasury Secretary Scott Bessent signaled Thursday that he may expand the government’s repurchases of long-term Treasuries even further, a day after the department caught markets off guard by pledging to at least double its buyback sizes in an effort to rein in soaring bond yields. Long-dated yields had spiked earlier this week, with the 30-year yield touching its highest level since 2007, driven by fears over the deteriorating fiscal outlook, heavy issuance, geopolitical risks from the war with Iran, and uncertainty over the Federal Reserve’s policy path.

But the strategy has so far failed to achieve its primary goal — yields have crept back higher — while inflicting collateral damage on the dollar. “Bessent’s efforts to suppress U.S. yields haven’t done much for U.S. yields, but it’s undermined the dollar,” said Marc Chandler, chief market strategist at Bannockburn Global Forex. “The market is pushing back”.

The dollar index, which measures the greenback against a basket of major currencies, edged up 0.01% to 98.80, with the euro up 0.03% at $1.1682 — after earlier reaching $1.1711, its strongest since May 14. Sterling rose 0.15% to $1.3649, having hit $1.3675, its highest since February 11. Bitcoin, viewed by some as an alternative to fiat currencies, continued its surge, climbing 6.22% to $77,178 after scaling $79,455 earlier.

Jackson Hole looms as next test

The next major test for Treasury yields — and by extension the dollar — may come next Friday, when Federal Reserve Chairman Kevin Warsh delivers a speech at the central bank’s annual Jackson Hole symposium. Warsh unsettled markets after the Fed’s July meeting by offering few clues on how policymakers might respond to persistent price pressures, with a divided Fed leaving interest rates unchanged.

“USD risks are skewed modestly to the downside” for the speech, analysts at TD Securities said. “Any hawkish clarification on inflation credibility may provide only limited USD support. Alternatively, failure to address inflation credibility could weigh more materially on the dollar”. Fed funds futures traders are currently pricing in a 40% chance of a September rate hike, rising to 72% for December.

Yen firms after inflation data

The Japanese yen strengthened 0.02% to 159.01 per dollar after data showed core consumer inflation accelerated in July, bolstering the case for a rate hike by the Bank of Japan. U.S. and Japanese authorities propped up the yen through joint intervention last month, but investors say the currency could resume its decline unless the BOJ tightens policy. “The yen is certainly salvageable, but it’s not a one-way train,” said Roosevelt Bowman, senior investment strategist at Bernstein Private Wealth. “Given that growth and inflation have at least firmed somewhat in Japan, if the BOJ policy was seen as more symmetric … it would help the yen”. The BOJ’s next policy meeting is set for Sept. 17-18.