Dollar Holds Near Three-Month Low as Risks Persist

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.

The dollar index traded around 98.8 on Friday and was on track to lose nearly 1% for the week, as the US government’s bond buyback plan heightened market volatility and boosted demand for safe-haven metals and other currencies at the expense of the greenback. The dollar index fell sharply on Wednesday after the US Treasury Department announced larger debt buybacks aimed at containing borrowing costs. Long-term Treasury yields initially declined on Wednesday before rebounding a day after amid concerns that the government’s plan may provide only a temporary solution. The market moves underscored concerns over rising US government debt, making the dollar less attractive to investors. Meanwhile, higher oil prices as the US prepares sweeping new economic sanctions against Iran also added to inflation concerns.