USD Strengthens as 3-Year Treasury Auction Shows Weak Demand

The US dollar gained momentum following a disappointing $58 billion 3-year Treasury note auction that yielded 3.891%, above the When-Issued level of 3.887%. The 0.4 basis point tail and below-average bid-to-cover ratio of 2.51x (versus 2.61x six-month average) signaled weaker demand from investors. Direct bidders surged to 29.4% from the typical 15.1%, while indirect bidders fell to 54.1% from 66.6% average, suggesting reduced foreign central bank participation. The auction's C- grade contributed to rising Treasury yields across the curve, with the 10-year yield reaching a 2-week high at 4.43%. This yield spike strengthened the dollar's interest rate differentials against major currencies. Technical indicators suggest continued dollar strength if yields maintain above 4.40%, with potential resistance for DXY at 106.50.