The U.S. dollar lingered near three-month lows on Monday as the euro held close to a three-month high around $1.17. Traders looked past Washington's Treasury buyback move, focusing instead on the federal debt load, a U.S.-Canada trade breakdown, and looming Iran sanctions.
The Dollar Spot Index inched up 0.12% to 98.88 on Monday. The index is still struggling to recover from a 1% weekly decline. Currency desks weighed the fading impact of Washington's Treasury buyback program against a fresh wave of North American trade friction and looming geopolitical sanctions.
Euro holds near three-month highs
The euro held virtually flat near three-month highs around $1.17, while the Japanese yen traded flat at 159.00 per dollar as traders awaited guidance on autumn rate hikes from Bank of Japan Deputy Governor Ryozo Himino.
Debt load overshadows Treasury's buyback move
Washington announced last week it would at least double its buyback ceiling for longer-dated Treasuries to $4 billion per operation to restore secondary market liquidity. However, foreign exchange traders quickly looked past the technical backstop.
Instead, desks are focused on a gross U.S. debt load exceeding $40 trillion and an annual deficit near $1.8 trillion. With market participants convinced that heavy debt issuance will keep long-end yields elevated, the dollar's usual yield advantage has done little to revive long positions.
Trade breakdown hits the Canadian dollar
While the broader dollar index drifted sideways, North American trade policy shocks generated sharp volatility elsewhere. The Canadian dollar slipped 0.4% as USD/CAD pushed higher following a complete breakdown in U.S.-Canada trade negotiations.
Washington slapped 50% tariffs on $20 billion of Canadian imports. Ottawa announced dollar-for-dollar retaliatory tariffs effective September 8. Meanwhile, the risk-sensitive Australian dollar edged 0.1% lower amid broad caution across commodity currencies.
Iran briefing and Jackson Hole loom
Markets are bracing for a scheduled press conference by U.S. Treasury Secretary Scott Bessent, who is expected to detail sanctions against Iran that the administration calls: "the greatest campaign of coordinated economic isolation in history." The threat of secondary sanctions on any nation or enterprise trading with Tehran has fueled fears of supply logistics bottlenecks.
Brent crude futures dipped slightly to $93.05 a barrel on Monday on pre-announcement profit-taking, yet risk around the Strait of Hormuz keeps inflation-sensitive currencies on edge. Traders are also positioning for Nvidia's second-quarter earnings release on Wednesday, which will test mega-cap tech valuations. Federal Reserve Chair Kevin Warsh's inaugural keynote at the Jackson Hole Economic Policy Symposium on Friday is expected to clarify the central bank's stance on rates amid lingering energy-driven inflation.
Source: Investing.com
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