Dollar wobbles near 3-month lows amid Iran sanctions, buyback fears

The U.S. dollar struggled to sustain gains on Tuesday as investors digested a pair of competing forces: expanded sanctions against Iran that briefly bolstered the greenback, and Treasury bond buyback plans that have rattled confidence in the currency's longer-term trajectory.

The dollar index, which measures the currency against six major peers, edged marginally lower in Asian trading to around 98.96 after climbing 0.16% overnight, remaining near three-month lows. The euro hovered near $1.1668, close to a three-month peak hit last week, while sterling held near a six-month high at $1.3639.cnbc

Sanctions Provide Limited Support

U.S. Treasury Secretary Scott Bessent unveiled an expansion of sanctions against Iran on Monday, warning countries to sever business ties with Tehran or risk being cut off from the dollar-based financial system.globalbankingandfinance+1

"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."cnbc

The Canadian dollar weakened for a second day against its U.S. counterpart after trade talks between Washington and Ottawa collapsed and the United States threatened to raise tariffs on Canadian goods. The Japanese yen held around 159.21 per dollar, having given back most of its intervention gains but remaining well off a multi-decade low near 164.devdiscourse+1

Treasury Buybacks Weigh on Sentiment

Treasuries found some support after CNBC Comcast Corporation ↗ 0.37% reported that the U.S. Treasury could use part of its cash balance to buy back longer-dated bonds to ease borrowing costs. That followed Bessent's surprise announcement last week that the Treasury would double the size of its quarterly repurchases of longer-dated bonds after their yields reached the highest levels in nearly two decades.globalbankingandfinance+2

Goldman Sachs The Goldman Sachs Group, Inc. ↘ 1.74% analysts noted that by trying to prevent longer-duration securities from losing value, the dollar becomes the primary adjustment mechanism to attract foreign capital for financing the U.S. current account deficit. The 10-year Treasury yield held around 4.704%, while the 2-year was flat at 4.246%.cnbc+1

Bitcoin ↘ 0.31% briefly crossed the $80,000 mark for the first time since mid-May, taking its monthly gains to nearly 30%, as debasement fears fueled momentum into cryptocurrencies.devdiscourse+1

All Eyes on Warsh at Jackson Hole

Market participants now await Federal Reserve Chair Kevin Warsh's debut speech at Jackson Hole on Friday for clues about the recent jump in bond yields. "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. "Renewed policy uncertainty is constraining the scope for USD gains."cnbc