The euro traded comfortably above $1.16 on Monday as the U.S. dollar hovered near its weakest level since mid-May. Treasury bond buybacks meant to calm long-term yields have instead unsettled currency markets, and traders are now watching for new U.S. sanctions on Iran and central-bank speeches later this week.
The euro held at $1.1680, comfortably above the $1.16 mark, as the greenback stayed pinned near multi-month lows. The US Dollar Index ticked up 0.1% to 98.88, still hovering near its lowest level since mid-May after falling nearly 1% the previous week.
Treasury buybacks unsettle the dollar
The pressure traces back to the U.S. Treasury, which said it would at least double the size of its long-end bond buybacks to $4 billion per operation to ease strain on long-term yields. The move initially pushed yields lower but has done little to calm broader concerns over the bond market. Meanwhile, U.S. federal debt has surpassed $40 trillion, and the federal deficit is approaching $1.8 trillion, leaving investors worried that heavy borrowing will keep upward pressure on yields.
Last week, 30-year Treasury yields hit almost two-decade highs, just before the buyback announcement. As one Goldman Sachs note put it, the intervention risks leaving the dollar as the outlet that absorbs the strain instead.
Sanctions and Fed watch keep traders cautious
Markets are also bracing for new U.S. sanctions on Iran. Treasury Secretary Scott Bessent is due to hold a press conference on the measures. According to Reuters: "the toughest sanctions in history" have been threatened, with investors focused on whether they could restrict Iranian oil exports.
Attention is also turning to central banks. Federal Reserve Chair Kevin Warsh speaks at Jackson Hole on Friday, and he is likely to face questions on the Treasury's buybacks alongside the usual rate outlook. A Thursday appearance by Bank of Japan Deputy Governor Ryozo Himino will also be closely watched for signs of a faster pace of rate hikes ahead of next month's policy meeting.
The dollar's broader retreat has not been confined to major currencies. It also logged its largest weekly drop against bitcoin in nearly three and a half years over the weekend.
Sources: Investing.com Forex News, Reuters via Investing.com, Crypto Briefing
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