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Dollar Holds Near 3-Month Low as Treasury Buybacks Offset Geopolitical Risks
Most Asian currencies traded within a tight range on Monday as the U.S. dollar held near a three-month low, with markets weighing the impact of U.S. Treasury bond buybacks against persistent fiscal concerns and renewed geopolitical risks.
The US Dollar Index, which fell nearly 1% in the previous week, was little changed at 98.83, its lowest point since mid-May, according to Investing.com data.
Treasury Action Pressures Dollar
The dollar's recent weakness follows a U.S. Treasury announcement last week that it would at least double the size of its long-end Treasury buybacks to $4 billion per operation. This move is intended to improve market liquidity and help contain upward pressure on long-term government borrowing costs.
However, the intervention has not fully eased broader concerns about the U.S. bond market. Investors remain cautious with U.S. federal debt surpassing $40 trillion and the federal deficit approaching $1.8 trillion, raising questions about the market's ability to absorb a large supply of government debt.
Geopolitical Risks Limit Currency Moves
AdThe dollar's softness provided limited support to regional currencies, with gains capped by several risk factors:
- Trade Tensions: The Canadian dollar weakened, with USD/CAD rising 0.2%, after trade negotiations between the U.S. and Canada collapsed. The U.S. imposed 50% tariffs on $20 billion of Canadian goods, prompting Ottawa to announce retaliatory measures.
- Iran Sanctions: Markets are bracing for details on new U.S. sanctions against Iran, expected to be announced by Treasury Secretary Scott Bessent. Investors are focused on whether the measures could further restrict Iranian oil exports, tightening global energy supplies and potentially fueling inflation.
Market Reaction and Outlook
Reflecting the cautious sentiment, most Asian currency pairs saw minimal movement. The onshore Chinese yuan (USD/CNY) and the Indian rupee (USD/INR) were flat, while the Japanese yen (USD/JPY) edged slightly lower to just under 159. The Australian dollar (AUD/USD) ticked down 0.1%.
Investors are now looking ahead to key events later in the week for further direction, including quarterly results from Nvidia and a speech by Federal Reserve Chair Kevin Warsh at the Jackson Hole economic symposium for fresh insights on risk appetite and the path of U.S. interest rates.
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