Dollar inches up as markets weigh Iran sanctions, Treasury buybacks
HONG KONG, Aug 25 (Reuters) – The U.S. dollar regained some strength on Tuesday, as investors parsed Washington’s expanded sanctions against Iran and renewed efforts to ease pressure on longer-dated Treasury yields, while cryptocurrencies extended a rally on debasement fears.
U.S. Treasury Secretary Scott Bessent unveiled an expansion of sanctions against Iran on Monday, warning countries to cut business ties with it or risk being forced out of the dollar-based financial system.
“That potentially is one source of a slight reversal of the dollar weakness that we had at the end of last week,” Ray Attrill, head of FX strategy at National Australia Bank, said in a podcast.
“The suggestion being that, maybe 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.”
The euro was down roughly 0.1% at $1.1655, on track for a third day of decline after hitting a three-month peak last week. Sterling also eased from a six-month high, last at $1.3624.
The Japanese yen weakened to 159.32 per dollar, having given back most of its intervention gains but still well off a multi-decade low of about 164.
The dollar index, which measures the U.S. currency against six major peers, gained 0.1% to stand at 99.07. That extended a gain of 0.16% overnight, further lifting it from three-month lows amid a revived debasement trade.
The Canadian dollar weakened 0.1% to $1.3860, extending a dip of 0.6% in the previous session, as the United States threatened to raise tariffs on Canadian goods after trade talks collapsed.
The New Zealand dollar and the Australian dollar were flat, trading at $0.5955 and $0.7152, respectively.
However, cryptocurrencies bucked the dollar’s strength as debasement fears fuelled momentum. Bitcoin crossed the $80,000-mark for the first time since mid-May, taking its gains for the month to nearly 30%.
YIELDS EASE, BUT RELIEF LIMITED
Treasuries found some support after CNBC reported that the U.S. Treasury could use part of its cash balance to buy back longer-dated bonds in an effort to ease borrowing costs.
That comes after Bessent surprised global bond investors last week by saying the Treasury would double the size of quarterly repurchases of longer-dated bonds after their yields reached the highest levels in nearly two decades.
However, the relief was limited. The yield on the 2-year note, which typically moves in step with expectations for Federal Reserve interest rates, was flat at 4.246%, while the yield on benchmark U.S. 10-year notes climbed back up to 4.710%.
Market participants also await Federal Reserve Chair Kevin Warsh’s debut speech on Friday in Jackson Hole, Wyoming, for clues to the recent jump in bond yields and reassurance about his independence from the Trump administration.
“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,” Sim Moh Siong, FX strategist at OCBC, wrote in a note.
