NEW YORK: The US dollar was roughly unchanged on Tuesday, as investors weighed Washington’s expanded sanctions against Iran and renewed efforts to ease pressure on longer-dated Treasury yields.
The greenback had stumbled late last week after US Treasury Secretary Scott Bessent said the Treasury would double the size of quarterly repurchases of longer-dated bonds, sparking concerns that a shift to a more direct strategy to mitigate the rise in borrowing costs could lead to a debasement of the dollar.
A CNBC report on Monday that the Treasury could use part of its cash balance to buy back longer-dated bonds, along with a drop in crude oil prices, helped send yields lower Monday.
“The fundamentals seem to move against the dollar — whether it’s Bessent, whether it’s that the other central banks expect to raise rates more than the Fed — so the fundamentals are negative. But the dollar is overstretched, the momentum indicators are oversold for the dollar,” said Marc Chandler, chief market strategist at Bannockburn Capital Markets in New York.
“So to me, that’s the tension that you’ve got: dollar oversold technicals and bearish fundamentals.” Expectations for an interest rate hike by the Federal Reserve at its September meeting have also dwindled, pricing in a 38.1 percent chance for an increase of at least 25 basis points, down from about 55 percent a month ago, according to CME FedWatch.
The dollar index, which measures the greenback against a basket of currencies, edged down 0.01 percent to 98.95, with the euro up 0.07 percent at USD1.167.
The expansion of sanctions against Iran unveiled on Monday, which the country vowed to resist, was seen as short on details as it did not have any mention of major trade partners such as China. Despite holding off on the harshest penalties, Bessent warned countries to cut business ties with Tehran or risk being forced out of the dollar-based financial system.
The Canadian dollar strengthened 0.08 percent versus the greenback to CD1.383 per dollar after seeing its largest drop since June 17 on Monday after trade talks between the US and Canada collapsed, prompting the US to slap 50 percent levies on some items. US President Donald Trump subsequently announced on Monday that the US would increase tariffs to 50 percent on all cars, trucks, automotive parts and steel from Canada starting January 1, 2027.
Analysts at Goldman Sachs said that while the escalation in trade tensions drove underperformance in the Canadian dollar to start the week, the move was relatively muted and was “likely signaling some continued expectation for an ultimate resolution” as well as the adjustments made by Canadian businesses to their supply chains over the past year.
The Japanese yen weakened 0.09 percent against the greenback to 159.23 per dollar while sterling strengthened 0.07 percent to USD1.364. Worries about the broader weakness in the dollar have been a boon to the cryptocurrency market recently, although bitcoin was last off 0.27 percent to USD78,713.40 after climbing to a more than three-month high of USD81,237.94.