Dollar Pressured by Hormuz Deal Prospects

The dollar index steadied near 99 on Tuesday after gaining some ground in the previous session, supported by safe-haven demand as the US moved to cut Iran off from the global financial system, highlighting the greenback’s central role in international trade. Treasury Secretary Scott Bessent announced plans on Monday to isolate Iran through sanctions targeting countries doing business with the Islamic Republic. Still, the dollar remained near three-month lows as the Treasury Department announced an expansion of its buyback program for long-dated government debt in an effort to contain rising borrowing costs. However, markets speculated that the plan may offer only a temporary solution, while renewing concerns over the risks of a US debt crisis and dollar weakness. Elsewhere, investors looked ahead to the latest US PCE price index data and Fed Chair Kevin Warsh’s speech at the annual Jackson Hole symposium this week for fresh clues on the monetary policy outlook.

The dollar index edged up to 99.0 on Monday but remained near three-month lows after its third weekly decline in four. The greenback stayed under pressure following the US Treasury’s decision to double buyback operations for longer-dated bonds, with reports suggesting Secretary Scott Bessent could use nearly $1 trillion from the Treasury’s General Account to help fund them. Meanwhile, trade tensions with Canada intensified after Washington imposed 50% tariffs on Canadian goods, with Ottawa pledging dollar-for-dollar retaliation. President Donald Trump also said tariffs on cars, trucks, auto parts and steel would rise to 50% from January 1, 2027. On the geopolitical front, the US expanded secondary sanctions targeting entities and countries maintaining business ties with Iran. Bessent warned that a major financial institution could be sanctioned this week and suggested China would not be exempt.

The dollar index held its decline around 98.8 on Monday, remaining under pressure after posting significant losses last week, as a sharp rise in Treasury yields heightened concerns over the US government’s mounting debt burden and weighed on the dollar’s appeal. The greenback's decline came as Treasury Secretary Bessent outlined a debt-buyback strategy he described as a “Treasury twist,” under which the government would buy back longer-dated Treasury securities to help influence the yield curve and manage borrowing costs. Meanwhile, investors continued to monitor tensions in the Middle East, with the US expected to announce new sanctions against Tehran. Iran, which has already faced decades of US sanctions, said the new measures were “bound to fail.” Investors are now turning their attention to key US economic data and Federal Reserve policy signals, including the July PCE inflation report and remarks from Fed Chair Kevin Warsh at the Jackson Hole economic symposium later this week.