The U.S. dollar hovered near multi-month lows on Monday, pressured by rising global bond yields and the Treasury’s plan to double long-end buybacks. Meanwhile, markets braced for upcoming policy speeches in Jackson Hole and potential new sanctions on Iran, creating widespread caution across global currency exchanges.
Treasury Buybacks and the Growing Debt Nerves
Global bond yields have climbed steadily, driven by solid economic growth expectations, rising inflation forecasts, and mounting anxiety over ballooning sovereign debts. Last week, after 30-year yields reached almost two-decade highs, the U.S. Treasury announced it would double buybacks at the long end to $4 billion per operation.
While that figure is modest in a market valued at $32 trillion, the interventionist signal immediately rattled traders and weighed heavily on the greenback. Analysts at Goldman Sachs noted the difficult balancing act facing American policymakers in a published note.
By attempting to hold the price of longer-duration securities from falling, this leaves the dollar as the remaining release valve to encourage foreign inflows to finance the U.S.' current account,
said analysts at Goldman Sachs in a note.
Dollar trading near multi-month lows, restrained by debt nerves
The currency fallout extends far beyond traditional foreign exchange desks. The dollar logged its largest weekly drop against bitcoin in nearly three-and-a-half years on Sunday, and it’s been sliding sharply on gold over revived fears the currency will suffer if the U.s. tries to hold down yields. Bitcoin rose nearly 23% vs dollar last week, while gold rose 5%.
Sanctions on Iran and High-Stakes Policy Speeches
Later on Monday, at 1800 GMT, U.S. Treasury Secretary Scott Bessent is due to hold a press conference after threatening the toughest sanctions in history
on Iran, with markets focused on whether he will target China. Iran’s foreign minister has dismissed the threat of new U.S. sanctions as a sign of desperation.
Market participants will also be hoping for some clarity on the outlook for U.S. interest rates when Federal Reserve Chairman Kevin Warsh speaks in Jackson Hole, Wyoming, on Friday. He is also sure to face questions about Treasury’s buybacks.
Any comments on the balance sheet, duration supply, or term premium could move the long end more than the data itself. That said, given Warsh’s typically restrained style, we aren’t holding our breath, BNY strategist Geoff Yu
FOREX-Dollar trading near multi-month lows, restrained by debt nerves
Diverging Currency Pressures in Asia and Europe
Across global markets, regional currencies reacted unevenly to the shifting U.S. landscape. The Canadian dollar slipped 0.3% in Asia trade, to C$1.3807 per dollar, after trade talks with the U.S. collapsed and Washington imposed 50% tariffs on Canadian goods, with Canada retaliating in kind. Friday data showing the strongest U.S. services growth in nearly two years in August held off dollar sellers but hardly inspired a rally.
The Australian and New Zealand dollars traded just shy of three-month highs at $0.7166 and $0.5972 respectively. The euro was comfortably above $1.16 at $1.1680 while the yen kept to the strong side of 159 per dollar. Sterling was firm at $1.3650 in morning trade and the yuan, which notched an eighth straight weekly rise last week, hovered near a 3-1/2-year high at 6.7232 per dollar.
Traders also await details on policy speeches this week in the U.S. and Japan. A Thursday appearance by Bank of Japan Deputy Governor Ryozo Himino will also be closely watched as a prelude to next month’s policy meeting. In particular, investors will be looking to see if he pushes back on a shift in market pricing to see a faster pace of hikes.
Himino may signal the BOJ is moving closer to another interest rate hike,
said Commonwealth Bank of Australia strategist Joe Capurso. However, any hawkish comments are likely to exert only modest downward pressure on USD/JPY. Developments in the U.S. bond market are a more important driver of USD/JPY.
