US Treasury Secretary Scott Bessent launches 'economic onslaught' on Iran

On Tuesday, the US dollar struggled to maintain gains against major currencies as investors analyzed Washington's expanded sanctions on Iran and attempts to reduce pressure on longer-dated Treasury yields. The euro strengthened slightly to $1.1668, near a three-month peak last week, while the British pound was up 0.1% at $1.3639, close to its six-month high.

Treasury Secretary Scott Bessent announced a broadening of sanctions against Iran on Monday, warning nations to sever ties with Iran or face exclusion from the dollar-based financial system. Analyst Ray Attrill suggested that traders might buy dollars before being sanctioned, "to avoid being cut off from US dollars."

Meanwhile, the Canadian dollar remained steady at $1.3844 after a 0.6% decline the previous day, as the US threatened to raise tariffs on Canadian goods following the collapse of trade negotiations. The Japanese yen edged higher to 159.21 per dollar, having regained most of its gains from intervention but remaining far from a multi-decade low of around 164.

The dollar index, which tracks the US currency against six major peers, dipped marginally to 98.96 in Asian trading hours, having jumped 0.16% overnight, buoyed by a renewed debasement trade, but having trouble sustaining the upward momentum.

New Zealand and Australian dollars both rose 0.1% as traders awaited the Reserve Bank of Australia's August policy meeting minutes release, settling at $0.5965 and $0.7157, respectively. Bitcoin experienced a 1% increase, trading at $78,817.34, after delivering its biggest weekly gain in nearly 3-1/2 years last week. Meanwhile, Treasury yields found some support after CNBC reported that the U.S. Treasury might use part of its cash balance to buy back longer-dated bonds to alleviate borrowing costs.

This move followed Bessent's surprise announcement last week that the Treasury would double the size of its quarterly repurchases of longer-dated bonds, following their yields reaching the highest levels in nearly two decades. However, the relief was limited, as yields on the 2-year note, which typically moves with expectations for Federal Reserve interest rates, stayed flat at 4.246%, while the 10-year note yield remained at 4.704%.

Markets are also anticipating Federal Reserve Chair Kevin Warsh's first speech at the Jackson Hole economic symposium in Wyoming on Friday, hoping for clues about the recent surge in bond yields and reassurance about his independence from the Trump administration. Market participants are concerned about uncertainties surrounding the Federal Reserve's reaction function and its commitment to prioritizing inflation, heightening attention on Warsh's remarks at Jackson Hole. Such renewed policy uncertainty is hampering the potential for US dollar gains.