Dollar inches up as markets weigh Iran sanctions, Treasury buybacks

The U.S. dollar showed signs of recovery on Tuesday as investors assessed the impact of expanded sanctions against Iran and efforts to stabilize longer-term Treasury yields, while cryptocurrencies experienced a surge due to concerns over currency devaluation. Treasury Secretary Scott Bessent announced a broader sanctions regime against Iran on Monday, cautioning nations against engaging with the country or facing removal from the dollar-based financial system.

This potential catalyst may have contributed to a slight rebound in the dollar's weakness observed at the end of the previous week, according to Ray Attrill, head of FX strategy at National Australia Bank.

The euro experienced a modest decline of around 0.1% to $1.1655, continuing a three-day downtrend following its peak last week. Similarly, the British pound softened from a six-month high, settling at $1.3624. The Japanese yen weakened to 159.32 per dollar, having retreated from most of its intervention gains, yet remains far from its multi-decade low of approximately 164.

The dollar index, which gauges the U.S. currency against six major counterparts, rose 0.1% to 99.07, marking a 0.16% increase from the previous day, as the renewed debasement trade gained momentum.

Canadian and New Zealand currencies slipped, with the loonie dropping 0.1% to $1.3860 and the kiwi remaining flat at $0.7152. However, cryptocurrencies defied the dollar's upward trend, buoyed by debasement fears. Bitcoin crossed the $80,000 threshold for the first time since mid-May, surging nearly 30% in a single month. Nevertheless, the relief in the Treasury market was limited, as the yield on the two-year note, indicative of expectations for Federal Reserve interest rates, held steady at 4.246%, while the 10-year note yield rebounded to 4.710%.

Investors are also eagerly awaiting Federal Reserve Chair Kevin Warsh's maiden speech on Friday in Jackson Hole, Wyoming, for insights into recent bond yield increases and reassurance regarding his independence from the Trump administration. Market uncertainty and doubts about the Fed's commitment to prioritizing inflation have intensified focus on Warsh's forthcoming remarks, dampening prospects for significant dollar gains.