Dollar struggles for traction as markets weigh Iran sanctions, Treasury buybacks

The U.S. dollar struggled to maintain gains against major currencies on Tuesday, as investors analyzed Washington's expanded Iran sanctions and continued efforts to lower longer-dated Treasury yields. The euro and British pound both showed slight increases, while the Japanese yen briefly strengthened against the dollar before easing.

U.S. Treasury Secretary Scott Bessent announced a broadened set of sanctions on Iran, warning nations to sever trade relations with Tehran or face potential exclusion from the dollar-based financial system. This move may have contributed to a brief reversal in the dollar's weakness observed at week's end, according to Ray Attrill, National Australia Bank's head of FX strategy.

The Canadian dollar remained unchanged after a modest decline in the prior session, as U.S. officials threatened to increase tariffs on Canadian imports following the collapse of trade talks. The Japanese yen edged higher, though it remained far from a multi-decade low. The dollar index, which gauges the U.S. currency against six key peers, dipped marginally in Asia trading.

The New Zealand and Australian dollars both gained roughly 0.1% ahead of the Reserve Bank of Australia's policy meeting minutes release. Bitcoin saw a 1% rise to around $78,817.34, after recording its biggest weekly gain in nearly 3.5 years the previous week. Treasury Secretary Bessent's announcement of potential Treasury bond purchases to alleviate borrowing costs provided some respite for Treasuries, but the yields on the 2-year and 10-year notes remained relatively stable.

Market participants are eagerly anticipating Federal Reserve Chair Kevin Warsh's debut speech in Jackson Hole, Wyoming, this Friday, as they await insights into the recent surge in bond yields and his stance on prioritizing inflation over other concerns.