The U.S. dollar remained close to three-month lows on Monday, struggling to gain traction during European trading as investors assessed rising trade tensions, concerns over U.S. debt and the threat of new sanctions linked to Iran.
The Dollar Spot Index edged up around 0.14% to 98.88, but the move offered little relief after the greenback recorded a weekly decline of roughly 1%.
Treasury Buybacks Fail to Lift the Dollar
The dollar’s weak performance suggests that the latest measures from the U.S. Treasury have done little to restore confidence among currency traders.
Washington recently announced plans to at least double the maximum size of its buybacks for longer-dated Treasury securities to $4 billion per operation. The move is intended to improve liquidity in the secondary bond market.
However, foreign exchange markets quickly shifted their attention back to the broader fiscal picture.
U.S. federal debt has climbed above $40 trillion, while the annual budget deficit is running near $1.8 trillion.
Investors expect heavy Treasury issuance to continue keeping longer-term bond yields elevated. Even so, higher U.S. yields have so far failed to generate a meaningful recovery in demand for the dollar.
Canadian Dollar Falls as Trade Tensions Escalate
While the broader dollar index traded in a relatively narrow range, renewed trade tensions created significant volatility in North American currencies.
The Canadian dollar weakened by around 0.4%, pushing USD/CAD higher after negotiations between the United States and Canada broke down.
Washington announced 50% tariffs on approximately $20 billion of Canadian imports.
Canada responded by announcing matching retaliatory tariffs, which are scheduled to take effect on September 8.
The escalating dispute added another source of uncertainty for currency markets already dealing with geopolitical and monetary policy risks.
Euro Holds Near Three-Month Highs
Elsewhere in the foreign exchange market, the euro remained largely unchanged near $1.17, keeping EUR/USD close to its highest levels in roughly three months.
The Japanese yen was also relatively stable at around 159 per dollar.
Traders remained cautious ahead of comments from Bank of Japan Deputy Governor Ryozo Himino, which could provide fresh clues about the possibility of additional interest rate increases later in the year.
Meanwhile, the risk-sensitive Australian dollar slipped around 0.1% as investors remained cautious toward commodity-linked currencies.
Markets Await New Iran Sanctions Details
Geopolitical concerns are also limiting risk appetite across global markets.
Investors are awaiting a press conference from U.S. Treasury Secretary Scott Bessent, who is expected to provide further details on Washington’s planned economic measures against Iran.
The administration has signaled that the measures could include extensive secondary sanctions targeting countries and companies that continue doing business with Tehran.
Such restrictions could disrupt international supply chains and increase pressure on global trade and energy markets.
Oil Markets Remain Focused on the Strait of Hormuz
Brent crude futures edged lower to around $93.05 per barrel on Monday as some traders locked in profits ahead of further announcements.
However, geopolitical risks surrounding the Strait of Hormuz remain a major concern.
Any disruption to energy flows through the region could push oil prices higher and create additional inflation pressure worldwide.
That possibility is particularly important for currency markets, as higher energy prices could complicate the outlook for interest rates and inflation across major economies.
Nvidia Earnings and Jackson Hole Take Center Stage
Currency traders are also preparing for several major economic and market events later this week.
Nvidia’s second-quarter earnings report on Wednesday will provide an important test for investor confidence in technology stocks and the broader artificial intelligence trade.
Strong or weak results could influence global risk sentiment and indirectly affect demand for safe-haven currencies such as the U.S. dollar.
Attention will then shift to the Jackson Hole Economic Policy Symposium on Friday.
Federal Reserve Chair Kevin Warsh is expected to deliver a closely watched keynote speech that could provide fresh guidance on the direction of U.S. monetary policy.
Investors will be looking for clues about whether the Federal Reserve intends to keep interest rates unchanged or respond to persistent inflation pressures linked partly to elevated energy prices.
With trade tensions rising, Iran sanctions approaching and major central bank signals ahead, the U.S. dollar could remain highly sensitive to geopolitical and economic developments throughout the week.
