Dollar Holds Near Multi-Month Lows as Bond Market Concerns and Iran Sanctions Weigh on Investors

By COMFORT OGBONNA

The U.S. dollar remained near multi-month lows on Monday as investors weighed concerns about the U.S. Treasury’s expanded bond-buyback plans, awaited details of new sanctions against Iran and looked ahead to key policy speeches in the United States and Japan.

The dollar’s recent weakness reflects growing uncertainty in global financial markets, particularly around the direction of U.S. interest rates, long-term government bond yields and the country’s rising debt burden.

The Canadian dollar slipped 0.2% in Asian trading to 1.3798 Canadian dollars per U.S. dollar after trade negotiations between Ottawa and Washington broke down and the United States imposed 50% tariffs on Canadian goods. Canada has responded with retaliatory measures, adding another source of uncertainty for currency markets.

The Australian dollar and New Zealand dollar remained close to three-month highs, trading at about $0.7166 and $0.5972, respectively.

The euro held comfortably above $1.16 at around $1.1680, while the Japanese yen remained on the stronger side of 159 per dollar.

Recent U.S. economic data has provided some support for the dollar but has not been enough to trigger a sustained recovery. Data released Friday showed that U.S. services activity expanded at its strongest pace in almost two years during August, suggesting that economic growth remains relatively resilient.

The stronger services data temporarily reduced pressure on the dollar, but investors remained reluctant to aggressively buy the currency as broader concerns over U.S. fiscal policy and Treasury market conditions continued to dominate sentiment.

The dollar has also come under pressure against other major assets. It recorded its biggest weekly decline against bitcoin in nearly three and a half years, while renewed demand for gold has reflected concerns that the value of the currency could weaken further if U.S. authorities attempt to prevent long-term borrowing costs from rising too sharply.

Long-term government bond yields have been climbing in several major economies as investors assess stronger economic growth, persistent inflation concerns and the growing amount of government debt being issued around the world.

In the United States, those concerns intensified after 30-year Treasury yields reached levels not seen in almost two decades. The Treasury subsequently announced plans to increase the size of certain bond-buyback operations at the long end of the market to $4 billion per operation.

Although the buybacks are relatively small compared with the roughly $32 trillion U.S. Treasury market, investors viewed the move as an important signal that officials are prepared to intervene more actively in the market.

That perception has added to pressure on the dollar.

Analysts said that attempts to support prices for longer-dated Treasury securities could leave the currency as an important mechanism for attracting foreign capital needed to finance the United States’ external deficit.

Sterling was steady at around $1.3650 in morning trading, while the Chinese yuan remained near a multi-year high after recording its eighth consecutive weekly gain against the dollar last week. The yuan was trading around 6.7232 per dollar.

Investors were also preparing for potentially market-moving developments surrounding Iran and U.S. monetary policy.

U.S. Treasury Secretary Scott Bessent was expected to hold a news conference later Monday after Washington threatened to impose some of its toughest sanctions yet on Iran.

Financial markets are particularly interested in whether the new measures will target Chinese companies or other major trading partners that continue to purchase Iranian oil or conduct business with Tehran.

Iran has rejected the threat of additional U.S. sanctions, with officials in Tehran portraying the measures as evidence of increasing pressure from Washington.

Any escalation could have consequences beyond the currency market, particularly if sanctions further restrict Iranian oil exports or create additional disruption in Middle Eastern energy markets.

Investors are also turning their attention to the Federal Reserve’s annual gathering in Jackson Hole, Wyoming, where Federal Reserve Chairman Kevin Warsh is scheduled to speak Friday.

Markets will be looking for indications about the outlook for U.S. interest rates and the central bank’s approach to its balance sheet.

Warsh could also face questions about the Treasury’s decision to increase bond buybacks, particularly their potential impact on the supply of long-term government debt and the additional compensation investors demand to hold longer-maturity securities.

Analysts said comments about the Treasury market, the supply of long-term debt or the so-called term premium could potentially have a greater effect on long-term bond yields than upcoming economic data.

However, expectations for a dramatic shift in policy remain limited because Warsh is generally viewed as a cautious and measured speaker.

Attention will also turn to Japan later in the week, with Bank of Japan Deputy Governor Ryozo Himino scheduled to speak Thursday ahead of the central bank’s next policy meeting.

Investors will closely examine his comments for signs that the Bank of Japan is becoming more comfortable with raising interest rates again.

A stronger signal from Japanese policymakers could provide some support for the yen, although analysts expect developments in the U.S. bond market to remain a more important driver of the dollar-yen exchange rate.

The currency market therefore enters the week facing several competing forces. Resilient U.S. economic activity could support the dollar, while concerns over Treasury intervention, rising government debt and long-term yields could continue to weigh on the currency.

At the same time, developments surrounding Iran, U.S. sanctions and global energy supplies could create additional volatility across financial markets.

For now, traders remain cautious, with the dollar hovering near multi-month lows as investors wait for greater clarity from Washington and Tokyo on monetary policy, government debt and geopolitical risks.