US Dollar Slips Toward Multi-Month Lows as Treasury Bond Buybacks Rattle Markets

By Staff, Agencies

The US dollar hovered near multi-month lows Monday as the Treasury's plan to increase long-term bond buybacks unsettled markets, while traders awaited new Iran sanctions and policy signals from US and Japanese officials.

The Canadian dollar slipped 0.2% to C$1.3798 per US dollar after US-Canada trade talks collapsed and Washington imposed 50% tariffs on Canadian goods, prompting Ottawa to retaliate.

Meanwhile, the Australian and New Zealand dollars remained near three-month highs at $0.7171 and $0.5979. The euro held above $1.16 at $1.1685, while the yen remained firm around 159 per dollar.

Although strong US services data for August limited dollar selling, the currency recorded its sharpest weekly decline against bitcoin in nearly three and a half years. It has also fallen sharply against gold amid renewed concerns over attempts to suppress US yields.

Long-term bond yields have been rising globally amid expectations of solid economic growth, persistent inflation and concerns over mounting government debt. After 30-year US Treasury yields reached nearly two-decade highs last week, the Treasury said it would double long-end buybacks to $4 billion per operation.

Although the amount is small compared with the $32 trillion Treasury market, the interventionist signal unsettled traders and weighed on the dollar. AMP investment strategist Shane Oliver said the move appeared to be reviving expectations of further US dollar depreciation.

Elsewhere, sterling held near $1.3650, while the yuan remained close to a three-and-a-half-year high at 6.7222 per dollar after recording an eighth consecutive weekly gain.

Later Monday, US Treasury Secretary Scott Bessent is expected to address markets after threatening “the toughest sanctions in history” against Iran, with investors watching for potential measures targeting China. Iran's foreign minister has dismissed the threat as a sign of Washington's desperation.

Investors will also watch Federal Reserve Chairman Kevin Warsh's Friday speech in Jackson Hole for clues on US interest rates and the Treasury's buyback plans.

BNY strategist Geoff Yu said comments on the Fed's balance sheet, Treasury issuance and term premiums could have a greater impact on long-term yields than economic data.

Meanwhile, Bank of Japan deputy governor Ryozo Himino's Thursday appearance will be closely monitored ahead of next month's policy meeting, particularly for signs that the central bank is moving toward another rate hike.

Analysts, however, said developments in the US bond market remain a more important driver of the dollar-yen exchange rate.