The U.S. dollar remained close to multi-month lows on Monday as investors reacted to the Treasury Department’s plans to increase purchases of long-dated government bonds. Markets were also cautious ahead of new U.S. sanctions on Iran and several important central bank speeches later this week.
Concerns over rising government debt and the possibility of intervention in the bond market continued to weigh on the dollar.
Canadian Dollar Falls After U.S. Tariff Dispute
The Canadian dollar weakened 0.3% during Asian trading to around C$1.3807 per U.S. dollar.
The decline followed the collapse of trade negotiations between Canada and the United States. Washington introduced 50% tariffs on Canadian goods, while Ottawa responded with equivalent retaliatory measures.
The escalation in trade tensions added further pressure to the Canadian currency.
Australian and New Zealand Dollars Hold Near Recent Highs
The Australian dollar traded around $0.7166, while the New Zealand dollar stood near $0.5972.
Both currencies remained close to their highest levels in roughly three months as broader weakness in the U.S. dollar supported other major currencies.
The euro held comfortably above $1.16 at around $1.1680, while the Japanese yen remained stronger than 159 per dollar.
Strong U.S. Services Data Fails to Lift Dollar
Economic data released on Friday showed that U.S. services activity expanded at its strongest pace in nearly two years during August.
The data helped limit additional selling pressure on the dollar. However, it was not strong enough to trigger a significant recovery.
Investors remain more focused on concerns surrounding Treasury yields, government debt and the future direction of U.S. monetary policy.
Dollar Weakens Against Bitcoin and Gold
The U.S. dollar also experienced significant weakness against alternative assets.
On Sunday, the dollar recorded its largest weekly decline against Bitcoin in nearly three and a half years.
The currency has also fallen sharply against gold as investors increasingly consider whether attempts to keep U.S. bond yields under control could weaken the dollar.
Gold and Bitcoin are often viewed by some investors as alternatives during periods of concern over traditional currencies and sovereign debt.
Rising Treasury Yields Increase Debt Concerns
Long-term government bond yields have been rising across global markets.
The move has been driven by a combination of stronger economic growth expectations, higher inflation forecasts and growing concerns about rapidly expanding sovereign debt levels.
Last week, the 30-year U.S. Treasury yield climbed close to its highest level in nearly two decades.
In response, the U.S. Treasury announced plans to double its purchases of longer-dated bonds to $4 billion per operation.
Although the amount is relatively small compared with the roughly $32 trillion Treasury market, investors viewed the move as an important signal of possible intervention.
Treasury Buybacks Put Pressure on the Dollar
Goldman Sachs analysts said efforts to prevent longer-term bond prices from falling could leave the dollar as a key adjustment mechanism for attracting foreign capital.
The concern is that if the U.S. government actively limits upward pressure on long-term yields, the currency may need to weaken to encourage overseas investors to continue financing U.S. deficits.
That possibility has contributed to recent selling pressure on the dollar.
Meanwhile, sterling remained firm near $1.3650.
The Chinese yuan also remained strong after recording its eighth consecutive weekly gain. The currency traded close to a three-and-a-half-year high at around 6.7232 per dollar.
Markets Await New Iran Sanctions
Investors are also watching developments surrounding Iran.
U.S. Treasury Secretary Scott Bessent is scheduled to hold a press conference later on Monday after warning that Washington could introduce what he described as the toughest sanctions ever imposed on Iran.
Markets will be paying particular attention to whether the measures target China or Chinese companies involved in trade with Tehran.
Iran’s foreign minister has rejected Washington’s latest sanctions threats, describing them as a sign of desperation.
Jackson Hole Could Shape Interest Rate Expectations
Attention will also turn to the Federal Reserve’s Jackson Hole gathering later this week.
Federal Reserve Chair Kevin Warsh is expected to speak on Friday, with investors hoping for clearer guidance on the outlook for U.S. interest rates.
His comments on the Fed’s balance sheet, Treasury supply and long-term bond yields could also have a major impact on financial markets.
BNY strategist Geoff Yu noted that comments on bond duration or the term premium could potentially move long-term yields more than upcoming economic data.
Bank of Japan Speech Could Move USD/JPY
Investors will also closely monitor a speech from Bank of Japan Deputy Governor Ryozo Himino on Thursday.
The appearance comes ahead of the Bank of Japan’s next policy meeting and could provide clues about whether policymakers are moving closer to another interest rate increase.
Commonwealth Bank of Australia strategist Joe Capurso said Himino could signal that the BOJ is becoming more prepared to raise rates again.
However, any hawkish comments may have only a limited impact on USD/JPY, as developments in the U.S. Treasury market remain a more important driver of the currency pair.
Dollar Outlook Remains Tied to Bonds and Central Banks
The dollar remains under pressure as investors balance strong U.S. economic data against concerns over government debt, rising Treasury yields and possible intervention in the bond market.
With new Iran sanctions, Federal Reserve guidance and Bank of Japan commentary all expected this week, currency markets could remain volatile as traders reassess the outlook for interest rates and global capital flows.
