Asian currencies slipped on Tuesday as the U.S. dollar staged a modest rebound, with investors weighing expanded U.S. sanctions on Iran, elevated Treasury yields and upcoming Federal Reserve policy signals.
The U.S. Dollar Index rose 0.1% to 98.95 by 04:50 GMT after gaining 0.2% overnight. The greenback strengthened on Monday after U.S. Treasury Secretary Scott Bessent announced broader sanctions against Iran, although concerns over U.S. fiscal risks limited further gains.
Bessent warned that countries and companies continuing to conduct business with Iran could lose access to the dollar-based financial system. Tehran responded by vowing retaliation, adding to geopolitical uncertainty surrounding the Middle East.
Against the Japanese yen, USD/JPY climbed 0.2% to 159.35. The Chinese yuan and Singapore dollar were broadly unchanged, while USD/KRW edged 0.1% higher. The Indian rupee also traded largely flat.
The Australian dollar showed little movement after minutes from the Reserve Bank of Australia’s August meeting revealed policymakers were divided over whether persistent inflation risks justified another interest rate hike.
Meanwhile, U.S. Treasury yields eased slightly following reports that Washington could use funds from its roughly $940 billion Treasury General Account to purchase longer-dated government debt. The potential measure would supplement plans to double quarterly buybacks of 10- to 30-year Treasuries to $4 billion per operation beginning September 10.
Despite these efforts, longer-term Treasury yields remain elevated, maintaining pressure on global borrowing costs while restricting the dollar’s ability to extend its recovery.
Currency markets are now focused on the July personal consumption expenditures price index scheduled for Wednesday. As the Federal Reserve’s preferred inflation gauge, the PCE data could influence expectations for the next U.S. interest rate move.
Investors will also closely monitor Federal Reserve Chair Kevin Warsh’s Jackson Hole speech on Friday for fresh guidance on monetary policy, inflation and the recent increase in Treasury yields.
