The U.S. dollar remained under pressure on Tuesday, trading close to three-month lows as investors balanced fresh geopolitical risks against ongoing concerns over U.S. fiscal policy and weakening yield support.
The Dollar Spot Index edged 0.1% higher to 99.065 after a modest 0.2% gain overnight. However, the greenback stayed close to the three-month low of 98.5 reached last week, showing that traders remain cautious about building large long-dollar positions.
Dollar Struggles Despite New Iran Sanctions
Recent geopolitical developments have provided only limited support for the U.S. currency.
Treasury Secretary Scott Bessent warned that foreign companies continuing to do business with Iran could face exclusion from the U.S. dollar-clearing system.
Even so, currency markets appeared more focused on broader macroeconomic concerns, including rising U.S. government debt, persistent fiscal deficits and the risk of renewed inflation pressures.
This suggests that geopolitical headlines are having less influence on the dollar than concerns surrounding the long-term U.S. economic outlook.
British Pound Leads Major Currencies
The British pound outperformed most major currencies, rising for a fifth consecutive trading session.
Sterling continued to benefit from relatively firm UK government bond yields and persistent pricing pressures in the services sector.
The euro was broadly unchanged around $1.1600, holding onto recent gains after Germany reported stronger-than-expected annual GDP growth of 1%.
Japanese Yen and South Korean Won Weaken
The Japanese yen slipped 0.2%, pushing USD/JPY to around 159.35.
Interest-rate differentials continued to favor the dollar against the yen ahead of scheduled remarks from Bank of Japan officials.
Meanwhile, the Australian dollar traded broadly flat after minutes from the Reserve Bank of Australia’s August meeting showed policymakers remain divided over whether persistent core inflation warrants another interest-rate increase.
The South Korean won also declined by around 0.2%.
The Indian rupee was little changed near 95.74 per dollar, with elevated oil prices and continued intervention from the Reserve Bank of India limiting larger moves.
U.S. Treasury Cash Plan Fails to Ease Fiscal Concerns
U.S. Treasury yields moved lower from recent highs after reports suggested Washington may use part of its roughly $940 billion Treasury General Account cash balance to support an expanded long-term debt buyback program.
The strategy could allow the Treasury to rely more heavily on existing cash reserves rather than issuing additional short-term bills.
This could help reduce pressure on financial markets by limiting the amount of new government debt that primary dealers must absorb.
However, concerns over the broader U.S. fiscal outlook remain significant.
U.S. Debt Above $40 Trillion Weighs on Dollar Outlook
Total U.S. gross national debt has now exceeded $40 trillion, while annual federal deficits remain close to $1.8 trillion.
As a result, foreign exchange markets remain skeptical that liquidity-management measures alone will be enough to improve the dollar’s long-term appeal.
Investors are also demanding a higher term premium to hold longer-dated U.S. government debt.
That shift has reduced some of the real-yield advantage that previously provided support for the U.S. dollar.
Lloyds Bank FX strategist Nicolas Kennedy noted that sustained currency momentum remains difficult to achieve. He suggested that stronger dollar weakness may require more visible tension between the Treasury and bond markets, combined with broader pressure across risk assets.
PCE Inflation Data Takes Center Stage
Attention is now turning toward Wednesday’s release of the July Personal Consumption Expenditures price index, the Federal Reserve’s preferred measure of inflation.
Markets will examine the PCE inflation report closely for evidence that underlying price pressures are continuing to moderate.
A softer reading could strengthen expectations that the Federal Reserve will maintain its current policy stance, while stronger inflation could revive concerns about tighter monetary conditions.
Warsh’s Jackson Hole Speech Could Move the Dollar
The PCE report will also set the stage for Federal Reserve Chair Kevin Warsh’s keynote speech at the Jackson Hole Economic Policy Symposium on Friday.
Currency traders will closely monitor Warsh’s comments for clues about the Federal Reserve’s next policy steps.
In particular, markets will look for signs of whether policymakers are becoming more concerned about slowing economic growth or remain focused on inflation risks linked to energy prices and other cost pressures.
Until those key events provide clearer direction, the U.S. dollar may remain trapped near recent lows, with fiscal concerns, interest-rate expectations and inflation data continuing to drive sentiment.
