The US dollar edged higher on Tuesday as investors assessed the expansion of US sanctions on Iran and renewed efforts in Washington to ease pressure on long dated Treasury yields.
The US Dollar Index rose about 0.1%, following a 0.2% gain in the previous session, but remained close to the three month lows reached last week near 98.5.
The dollar had strengthened at the start of the week after US Treasury Secretary Scott Bessent announced an expansion of sanctions against Iran. However, those gains failed to generate sustained demand for the currency as investors remained concerned about the fiscal risks facing the United States.
Bessent said countries and companies that continue trading with Iran could face the risk of being excluded from the dollar based financial system.
Iran, meanwhile, pledged to respond to the measures, while Iranian officials expressed confidence that the country’s main trading partners would be able to resist US pressure.
The Japanese yen weakened, with the dollar rising about 0.2% against the Japanese currency to 159.35 yen. The dollar also gained around 0.2% against the South Korean won, while remaining broadly unchanged against the Indian rupee. At the same time, the Australian dollar traded in a narrow range against its US counterpart.
Minutes from the Reserve Bank of Australia’s August meeting showed that policymakers were divided over whether inflation risks justified another increase in interest rates.
In the US Treasury market, yields moved slightly lower following reports that the Treasury Department could use liquidity held in its general account, estimated at around $940 billion, to finance purchases of long dated government bonds.
The move comes alongside plans to double Treasury repurchases of securities with maturities between 10 and 30 years to $4 billion per operation starting in September.
Despite these measures, Treasury yields remained elevated, keeping global borrowing costs under pressure and limiting the dollar’s ability to extend its recovery.
Investor attention is increasingly turning to July’s Personal Consumption Expenditures Price Index, due tomorrow. The indicator is the Federal Reserve’s preferred measure of inflation and is expected to provide an important signal for market expectations regarding the next steps in monetary policy.
Markets are also awaiting Federal Reserve Chair Kevin Warsh’s speech at Jackson Hole on Friday for clues about the policy outlook and the recent rise in US Treasury yields.
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