1 week ago
Dollar shifts lower as Iran sanctions and tariff tensions weigh
The U.S. dollar moved in different directions on Monday and Tuesday.
It first became stronger after the United States expanded sanctions on Iran and raised tariffs on some Canadian goods.
On Tuesday, the dollar slipped a little as investors worried about Treasury plans to buy more long-term government bonds.
Some investors thought those plans could weaken the dollar over time.
Iran said it would resist the sanctions.
Canada responded to the U.S. tariffs with matching tariffs on about $20 billion of American imports.
Bitcoin also rose as some investors sought alternatives to traditional currencies.
Investors are waiting for new U.S. economic information and a speech by Kevin Warsh about interest rates.
The dollar rose on Monday after expanded Iran sanctions and new U.S. tariffs on Canadian goods, then edged lower on Tuesday.
Treasury Secretary Scott Bessent’s plan to double longer-term bond buybacks, and possible use of nearly $1 trillion in Treasury cash, renewed concerns about dollar debasement.
Iran vowed to resist the expanded sanctions, while Bessent warned countries to cut business ties with Tehran or risk losing access to dollar-based finance.
The Canadian dollar fell sharply on Monday after 50% U.S. tariffs, then strengthened slightly on Tuesday as Canada imposed matching tariffs on about $20 billion of annual U.S. imports.
Investors are watching U.S. economic data and Federal Reserve Chairman Kevin Warsh’s Friday remarks in Jackson Hole for clues about interest rates.
- Who
- The Trump administration, Treasury Secretary Scott Bessent, Iranian authorities, Canadian Prime Minister Mark Carney, the Canadian government, and financial-market participants.
- What
- The dollar first gained and then edged lower as markets assessed expanded Iran sanctions, U.S.-Canada tariff escalation, and Treasury plans for larger bond buybacks.
- Where
- Currency trading was reported in New York; Kevin Warsh is scheduled to speak in Jackson Hole, Wyoming.
- When
- Monday and Tuesday, including Tuesday, August 25; additional market attention is expected Friday.
- Why
- Investors were assessing sanctions pressure on Iran, retaliatory trade measures between the United States and Canada, Treasury efforts to reduce long-term borrowing costs, and the outlook for U.S. interest rates.
Arguments for the policies
Criticism and opposing responses
Iran sanctions
Arguments for the policies
The Trump administration said expanded secondary sanctions could sever Iran’s economic lifelines and pressure Tehran to end attacks on ships in the Gulf.
Criticism and opposing responses
Iran vowed to resist, while the report noted that the sanctions lacked details and did not mention major trade partners such as China.
Treasury bond buybacks
Arguments for the policies
Larger buybacks, potentially funded partly from the Treasury’s cash balance, could ease upward pressure on longer-term bond yields.
Criticism and opposing responses
Economist Brian Jacobsen said lower long-term yields would not solve the debt problem and could make government debt more sensitive to Federal Reserve rate changes; investors also worried about dollar debasement.
U.S.-Canada tariffs
Arguments for the policies
The United States increased tariffs as part of its trade policy, while Canadian analysts said the relatively muted currency reaction could reflect expectations of an eventual resolution.
Criticism and opposing responses
Canada imposed dollar-for-dollar retaliation and provided aid for businesses and workers. Mark Carney said a mutually beneficial deal required respect for Canada’s sovereignty.
Key facts
- Dollar index
- Rose 0.17% to 98.99 on Monday, then edged down 0.07% to 98.92 on Tuesday.
- Treasury buybacks
- The Treasury plans to double quarterly repurchases of longer-dated bonds; reports said it could use part of its nearly $1 trillion General Account to help fund them.
- Iran sanctions
- The United States expanded secondary sanctions intended to sever economic support for Iran; Iran vowed to resist.
- Canadian dollar
- It fell 0.61% to C$1.385 per U.S. dollar on Monday, then strengthened 0.1% to C$1.383 on Tuesday.
- Canada tariffs
- Canada imposed retaliatory tariffs on about $20 billion of annual U.S. imports and matched Washington’s latest duties dollar-for-dollar.
- U.S. tariffs
- The United States announced 50% tariffs on some Canadian goods, with tariffs on Canadian cars, trucks, automotive parts, and steel set to rise to 50% starting January 1, 2027.
- Bitcoin
- Bitcoin rose 2.05% to $78,993.42 on Monday and was up 0.43% at $79,259.06 on Tuesday after briefly reaching $81,237.94.
Quotes
Brian Jacobsen
Chief economist at Annex Wealth Management
“The fundamentals seem to move against the dollar — whether it's Bessent, whether it's that the other central banks expect to raise rates more than the Fed — so the fundamentals are negative. But the dollar is overstretched, the momentum indicators are oversold for the dollar.”
livemint.com
“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?”
livemint.com
Sources
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