Dollar firms on Iran sanctions; loonie hit by new US tariffs
US dollar advances after Iran sanctions expansion; Canadian dollar drops on new 50% tariffs announced by Trump.
The US dollar strengthened on Monday, recovering from three-week lows, after the Trump administration announced an expansion of sanctions on Iran and imposed fresh tariffs on Canadian goods.
Treasury Secretary Scott Bessent said the new secondary sanctions are designed to "sever every economic lifeline" supporting Iran, intensifying pressure on Tehran over its attacks on shipping in the Gulf.
The greenback extended its gains following the announcement, though it briefly pared some of its advance after a CNBC report suggested Bessent could use the Treasury's near-$1 trillion General Account to fund bond buybacks rather than issuing short-term bills. That report also helped push longer-dated Treasury yields lower.
Brian Jacobsen, chief economist at Annex Wealth Management, questioned the approach: "If the reporting is true that the Treasury is going to announce using a slug of its Treasury General Account at the Fed to buy longer-term bonds, it could be an interesting experiment. Does firing a bazooka at a hurricane work?" He added that lower long-end yields won't fix the debt problem and could make the government's debt burden more sensitive to Fed policy rate changes.
The dollar index rose 0.17% to 98.99, while the euro slipped 0.14% to $1.1663.
Canadian dollar slides on tariff threat
The Canadian dollar weakened 0.61% against the greenback to C$1.385, its biggest one-day drop since June 17, after President Donald Trump said in a social media post that the US will impose 50% tariffs on all cars, trucks, automotive parts, and steel from Canada starting January 1, 2027.
Canada has promised to retaliate "dollar for dollar" on the new levies. Prime Minister Mark Carney said a "mutually beneficial deal" with the US remains possible, but only if Americans respect Canada's sovereignty.
Sterling dipped 0.06% to $1.3632, holding near its six-month high, while the yen softened 0.13% to 159.13 per dollar. Bitcoin gained 2.05% to $78,993.42 after its largest weekly gain in nearly 3-1/2 years.
Markets await data, Fed guidance
Investors this week will watch US economic data including the personal consumption expenditures price index, personal income and spending, consumer confidence, and the second estimate of second-quarter GDP.
Federal Reserve Chairman Kevin Warsh is scheduled to speak in Jackson Hole, Wyoming, on Friday. However, analysts at UBS said Warsh's "quest to end any and all forms of forward guidance suggests we probably won't hear where the funds rate is headed." Morgan Stanley's chief US economist Michael Gapen echoed that view, saying, "We expect silence on the near-term outlook for monetary policy, including the expansion of the Treasury buyback program."