The dollar held near three-month lows on Tuesday as traders looked past Washington's expanded sanctions against Tehran and toward Wednesday's PCE inflation data. The euro traded flat at $1.1600 while sterling extended its advance, and Treasury yields eased on reports that Washington may tap its cash reserves instead of issuing more short-term debt.
Sanctions warning fails to move the dollar
The Dollar Spot Index edged up 0.1% to 98.89 on Tuesday. That modest bounce left the greenback within reach of its three-month low of 98.5 touched last week, and Treasury Secretary Scott Bessent's warning that foreign firms continuing business with Iran face complete exclusion from the dollar-clearing system did little to shift the pattern.
Instead, desks focused on the growth of U.S. sovereign debt and the risk of persistent cost-push inflation. The euro traded flat at $1.1600, holding recent gains after Germany reported a stronger-than-expected 1.0% annual GDP expansion. Sterling outperformed its G10 peers, rising for a fifth straight session on resilient UK gilt yields and firm service-sector pricing.
Cash-balance plan eases yields but not fiscal anxiety
Treasury yields backed off recent peaks after reports that Washington may draw on its roughly $940 billion Treasury General Account to fund its doubled long-end buyback program, rather than issue more short-term bills. However, with total U.S. gross national debt topping $40 trillion and annual deficits near $1.8 trillion, FX desks remained unconvinced that liquidity adjustments alone can restore the dollar's structural appeal.
Investors therefore continue to demand a higher term premium, eroding the real-yield buffer that had previously shielded the currency. According to Investing.com: "Sustained FX momentum is still proving hard to come by", said Nicolas Kennedy, FX strategist at Lloyd's Bank.
Traders pivot to PCE and Jackson Hole
Market focus is now locked on Wednesday's July Personal Consumption Expenditures price index, the Federal Reserve's preferred inflation gauge. Trading desks will parse the data to gauge whether price pressures are cooling enough for the Fed to hold its policy pause.
The print sets the stage for Fed Chair Kevin Warsh's first keynote at the Jackson Hole Economic Policy Symposium on Friday. Traders will scrutinize his tone for signs of whether the central bank will prioritize cooling growth or respond forcefully to energy-driven inflation risks.
Source: Investing.com
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