EUR/USD Holds Near 1.1680 as US Fiscal Concerns Weaken the Dollar

Key Takeaways

• EUR/USD traded around 1.1676–1.1685, which extended its advance for a fourth consecutive session.
• The dollar remains under pressure after the US Treasury doubled its long-term bond buybacks to $4 billion per operation.
• Resistance at around 1.1700–1.1705 may limit immediate gains, while Iran sanctions and Federal Reserve commentary could revive volatility.

EUR/USD held near multi-month highs on Monday, August 24, trading around 1.1680 as concerns over US debt and Treasury intervention continued to pressure the dollar.

The pair entered its fourth consecutive session of gains after rising approximately 0.9% last week. Meanwhile, the US Dollar Index fell about 0.8% to 96.832, showing that the euro’s advance was part of a broader retreat across the greenback rather than a response to a major new eurozone catalyst.

EUR/USD extends its winning streak

source: tradingeconomics

EUR/USD moved between approximately 1.1676 and 1.1685 during Monday’s early trading, staying close to its strongest level since late May.

The dollar’s weakness was broad-based. Sterling held around 1.3650, while the Australian and New Zealand dollars remained close to three-month highs. The Chinese yuan also traded near its strongest level in three and a half years.

Recent US economic data offered the greenback only limited support. August services-sector activity recorded its strongest expansion in nearly two years, but the release failed to produce a sustained dollar rebound.

This market reaction suggests that investors are currently placing greater weight on fiscal risks and developments in the US Treasury market than on individual economic releases. Stronger data would normally support the dollar by reinforcing expectations for higher interest rates, but that relationship has been disrupted by concerns about government borrowing and the long-term value of the currency.

US Treasury bond buybacks pressure the dollar

The latest EUR/USD rally accelerated after the US Treasury announced that it would at least double its purchases of longer-dated government bonds to $4 billion per operation.

The announcement followed a sharp increase in long-term borrowing costs, with the 30-year Treasury yield recently reaching its highest level in almost two decades. The Treasury’s intervention is intended to improve liquidity and reduce pressure in the long end of the bond market.

However, the move also raised questions about the US fiscal position. The Treasury market is worth approximately $32 trillion, while total US government debt has surpassed $40 trillion. Against that backdrop, the additional buybacks are relatively small and do not directly resolve the underlying budget deficit.

When Treasury yields rise because economic growth is strengthening, the dollar often benefits. Higher yields can attract international capital into dollar-denominated assets.

The situation becomes more complicated when yields are rising because investors are demanding greater compensation for fiscal and inflation risks. Attempts to restrain those yields may support bond prices, but they can also shift market pressure towards the currency.

Longer-dated yields initially fell by around 10 basis points following the announcement, while the dollar weakened.

The euro is also receiving support from international diversification. Overseas investors purchased roughly €1.1 trillion of eurozone securities over the previous 12 months, including a record €200 billion of debt securities in June. These flows may provide a more durable source of demand for the single currency if concerns surrounding US assets persist.

Iran sanctions could restore safe-haven dollar demand

Geopolitical risk remains an important obstacle to further EUR/USD gains.

US Treasury Secretary Scott Bessent is scheduled to hold a press conference at 18:00 GMT to outline additional sanctions against Iran. Markets are watching whether the proposed measures will also target Chinese companies or financial institutions doing business with Tehran.

Iran’s continued control of the Strait of Hormuz has made the announcement particularly significant for energy markets. Brent crude traded near $93.07 per barrel ahead of the briefing, while West Texas Intermediate fell to around $85.64 after both benchmarks recorded strong gains during the previous week.

A substantial escalation in sanctions or Middle East tensions could renew demand for the dollar as a safe-haven asset. It could also lift oil prices, increase inflation concerns and strengthen expectations that US interest rates will remain elevated.

Conversely, a limited sanctions package that does not materially disrupt energy supplies could allow fiscal concerns to remain the main driver of the dollar. The market’s reaction may therefore depend more on the scope and enforcement of the measures than on the sanctions announcement itself.

Fed Chair Warsh’s Jackson Hole speech is the next major test

Attention will shift later in the week to Federal Reserve Chair Kevin Warsh’s speech at the Jackson Hole economic symposium.

Markets currently imply around a 40% probability of a US interest-rate increase at the September meeting and fully price a move by December. Those expectations could change following this week’s inflation figures, with core inflation forecast to remain around 3.3%.

A more hawkish message from Warsh could rebuild the dollar’s interest-rate advantage and interrupt the EUR/USD rally. Comments about the Fed’s balance sheet, Treasury supply or long-term inflation risks may be particularly important following Bessent’s bond-market intervention.

A speech offering little new guidance could have the opposite effect. With investors already questioning US fiscal credibility, the absence of a clear monetary-policy response may leave the dollar vulnerable to additional selling.