NEW YORK, – The U.S. dollar advanced on Monday, coming off its third weekly decline in four that sent the greenback to three-month lows after President Donald Trump’s administration announced an expansion of sanctions on Iran and separate tariffs on goods from Canada.
The greenback extended gains after U.S. Treasury Secretary Scott Bessent announced the expansion of secondary sanctions in hopes they will “sever every economic lifeline” that sustains Iran in the latest effort to pressure Tehran into ending its attacks on ships in the Gulf.
After last week’s announcement by the Treasury Department that it would double the size of liquidity support buyback operations for longer-dated notes and bonds, CNBC reported earlier on Monday, citing two senior Treasury officials, that Bessent could tap the department’s near $1 trillion General Account to help fund bond buybacks, instead of issuing short-term bills.
The dollar briefly pared some gains after the report, along with longer-dated Treasury yields.
“If the reporting is true that the Treasury is going to announce using a slug of its Treasury General Account at the Fed to buy longer-term bonds, it could be an interesting experiment. Does firing a bazooka at a hurricane work?” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.
“Lower bond yields at the long end won’t fix the debt problem. Longer term, it could make it worse. The government’s debt burden would become even more sensitive to changes in the Fed’s policy rate.”
The dollar index, which measures the greenback against a basket of currencies, rose 0.17% to 98.99, with the euro down 0.14% at $1.1663.
Long-end yields have been climbing around the globe due to a combination of a solid economic growth outlook, expectations for rising inflation and concern about swelling sovereign debts, while the Treasury buyback expansion to relieve upward pressure on yields has fueled concerns the dollar will weaken as a result.
CANADIAN DOLLAR WEAKENS ON TARIFFS
Trade tensions weighed on the Canadian dollar, which weakened 0.61%, its biggest drop since June 17, versus the greenback to C$1.385 per dollar and was on track to snap a three-day streak of gains, after Washington imposed 50% tariffs on Canadian goods, with Canada promising to retaliate “dollar for dollar” on the new levies.
Trump said in a social media post on Monday that the U.S. will increase tariffs to 50% on all cars, trucks, automotive parts and steel from Canada starting January 1, 2027.
Canadian Prime Minister Mark Carney said a “mutually beneficial deal” with the U.S. was possible, but only if Americans respect Canada’s sovereignty.
Sterling dipped 0.06% to $1.3632, holding near its six-month high of $1.3675 hit on Friday. The Japanese yen softened 0.13% against the greenback to 159.13 per dollar.
In cryptocurrencies, bitcoin gained 2.05% to $78,993.42 after registering its largest weekly gain in nearly 3-1/2 years last week.
KEY DATA RELEASES, WARSH REMARKS EYED
U.S. economic data this week includes the personal consumption expenditures price index, personal income and spending, consumer confidence and the second estimate of second-quarter economic growth.
Market participants will also be hoping for some guidance on the outlook for U.S. interest rates when Federal Reserve Chairman Kevin Warsh speaks in Jackson Hole, Wyoming, on Friday.
However, UBS economists said in a note that Warsh’s “quest to end any and all forms of forward guidance suggests we probably won’t hear where the funds rate is headed,” while Morgan Stanley’s chief U.S. economist Michael Gapen said, “We expect silence on the near-term outlook for monetary policy, including the expansion of the Treasury buyback program.”
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