Dollar Holds Steady as Iran Sanctions and Bond Buyback Plans Weigh
The dollar is flat against major peers as investors weigh expanded Iran sanctions and Treasury's plan to buy back longer-dated bonds.
The U.S. dollar struggled to build on its recent recovery on Tuesday, trading flat against a basket of major currencies as investors digested Washington's expanded sanctions on Iran and fresh signals on Treasury bond buybacks.
The euro edged up to $1.1668, hovering near a three-month high, while sterling gained 0.1% to $1.3639, close to its six-month peak. The dollar index was marginally lower at 98.96 in Asian trading, having climbed 0.16% overnight from three-month lows.
Treasury Secretary Scott Bessent announced an expansion of sanctions against Iran on Monday, warning countries to sever business ties with Tehran or risk losing access to the dollar-based financial system. Analysts said the move could prompt some pre-emptive dollar buying by entities fearing future sanctions.
"If you're going to be sanctioned and you're not going to have access to U.S. dollars, then you better buy some dollars first before that happens," said Ray Attrill, head of FX strategy at National Australia Bank.
The Canadian dollar held steady at $1.3844 after a 0.6% dip, as the U.S. threatened higher tariffs on Canadian goods following collapsed trade talks. The yen strengthened slightly to 159.21 per dollar, still well off its multi-decade low of around 164.
In the bond market, Treasuries found some support after reports that the Treasury could use part of its cash balance to buy back longer-dated bonds, easing borrowing costs. This follows Bessent's surprise announcement last week to double quarterly repurchases of longer-dated bonds after yields hit near two-decade highs.
However, relief was limited. The 2-year yield held at 4.246%, while the 10-year yield stood at 4.704%. Investors are now awaiting Federal Reserve Chair Kevin Warsh's debut speech at Jackson Hole on Friday, seeking clarity on the recent jump in yields and reassurance about the Fed's independence.
"Uncertainty over the Fed's reaction function, coupled with growing doubts about its commitment to prioritising inflation, has sharpened attention on Chair Warsh's upcoming remarks," said Sim Moh Siong, FX strategist at OCBC.
In cryptocurrencies, bitcoin rose 1% to $78,817, following its largest weekly gain in nearly 3-1/2 years.