US dollar fragile as investors weigh Iran sanctions, Treasury buybacks

The US dollar maintained its position on Tuesday (Aug 25), but investors remained wary of potential further drops due to Washington's toughened sanctions on Iran and efforts to lower Treasury yields. Treasury Secretary Scott Bessent's announcement of doubling quarterly repurchases of longer-dated bonds had initially unsettled investors, sparking worries of a more interventionist stance to control borrowing costs ahead of the mid-term elections.

A CNBC report indicated that part of the Treasury's cash reserves might be used for buying back longer-dated bonds, which seemed to steady long-term yields. However, concerns lingered that a combination of factors might keep the dollar under pressure throughout the year. David Morrison, a senior market analyst at Trade Nation, pointed out that a weaker dollar would benefit the administration, as it would encourage US companies to export more.

Additionally, traders had lowered their expectations for an imminent Federal Reserve interest rate hike, with the probability of a 25 basis point increase in September falling to around 40%, down from 67% earlier in the month. While the euro edged lower against the US dollar, the British pound strengthened. The Canadian dollar weakened against the US dollar for the second consecutive day, while the US dollar rose against the Japanese yen.

The weakening of the Canadian dollar and the strengthening of the US dollar against the Japanese yen may have contributed to gains in the cryptocurrency market, with Bitcoin briefly surpassing the US$80,000 mark and Ethereum nearing its January high.