Investor Anxiety Over National Debt Pins Dollar Near Recent Lows
The U.S. dollar hovered near multi-month lows on Monday in a market unsettled by the U.S. Treasury’s promise to buy back more long-dated bonds, while traders awaited details of sanctions on Iran and for policy speeches this week in the U.S. and Japan.
Trade tensions weighed on the Canadian dollar, which weakened 0.5% to C$1.384 per dollar, after Washington imposed 50% tariffs on Canadian goods, with Canada retaliating in kind.
With the dollar having slid broadly in recent days the euro was trading at $1.1664, down a touch on the day, but in sight of last week’s three-month top.
Sterling was likewise marginally softer at $1.3627 but near its six-month high of $1.3675 also hit on Friday. The Japanese yen was a touch weaker at 159.21 per dollar.
The dollar logged its largest weekly drop against bitcoin in nearly 3-1/2 years on Sunday and it has been sliding sharply on gold over revived fears the currency will suffer if the U.S. tries to hold down yields.
Long-end yields have been climbing globally on a combination of a solid economic growth outlook, rising inflation expectations and concern about ballooning sovereign debts.
Last week, after 30-year yields hit almost two-decade highs, the U.S. Treasury announced it would double buybacks at the long end to $4 billion per operation.
The size is paltry in a market worth $32 trillion, but the interventionist signal spooked traders and hit the dollar.
“The more (U.S. Treasury Secretary Scott Bessent) tries to push back, the more markets will push against him,” said Marc Ostwald, chief economist & global strategist at ADM Investor Services International.
“As a result, you’ll see what we’ve seen in the last week, which is strong support for gold and bitcoin, because of those debasement fears, and people will look to diversify out of G7 bond assets, particularly because they fear that no one’s doing anything to rein in the budget deficits.”
China’s yuan, which notched an eighth straight weekly rise last week, hovered near a 3-1/2-year high at 6.7236 onshore yuan per dollar. [GBP/][CNY/]
SANCTIONS AND WARSH
Bessent is due to hold a press conference at 1700 GMT after threatening “the toughest sanctions in history” on Iran, with markets focused on whether he will target China.
Iran’s foreign minister has dismissed the threat of new U.S. sanctions as a sign of desperation.
Market participants will also be hoping for some clarity on the outlook for U.S. interest rates when Federal Reserve Chairman Kevin Warsh speaks in Jackson Hole, Wyoming, on Friday.
He is also sure to face questions about the Treasury’s buybacks.
“To dramatically alter his communication and provide clearer guidance could risk him being viewed as beholden to the Treasury and hence undermine his credibility. If he sticks to his guns and says little on his views on Fed action, he risks triggering further bond selling,” said Derek Halpenny, head of research, global markets EMEA & international securities at MUFG.
A Thursday appearance by Bank of Japan Deputy Governor Ryozo Himino will also be closely watched as a prelude to next month’s policy meeting. In particular, investors will be looking to see if he pushes back on a shift in market pricing to see a faster pace of hikes.
(Reporting by Tom Westbrook in Singapore and Johann M Cherian in Bengaluru; Editing by Lincoln Feast, Thomas Derpinghaus, Kate Mayberry and Chizu Nomiyama )
This article was first reported by Reuters
