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Brown Brothers Harriman’s (BBH) Elias Haddad notes that the Treasury’s buyback announcement initially pushed longer-term Treasuries lower, weakened the Dollar and boosted Gold. He argues the USD slump should stabilize this week, with the US growth advantage offsetting fiscal concerns. Futures imply modest further Fed tightening, but BBH sees risks skewed toward a dovish repricing as inflation and labor data remain contained.

USD slump expected to stabilize

"The Treasury’s buyback announcement dominated market action last week. Longer term Treasury yields initially fell but the relief proved fleeting, USD weakened against all major currencies and gold rallied. The Treasury’s intervention blurred the lines between improving market functioning and suppressing borrowing costs to contain fiscal stress."

"Regardless, we expect the USD slump to stabilize this week. The widening US growth edge over other major economies, reflected by the composite PMIs, can offset some of the structural drag to USD from worsening US fiscal credibility."

"ADP private employment change for the week ending August 8 will be of interest (Tuesday). While the weekly ADP is poor at predicting monthly NFP change, it does a better job at capturing the broad direction of travel. And it currently points to weakening labor demand. "

"Fed funds futures price in a 40% probability of a 25bps hike to 3.75-4.00% at the next September 16 meeting and a total of nearly 50bps of tightening over the next twelve months. In our view, the risk is skewed towards a dovish Fed repricing. The US labor market is in balance, wage growth is consistent with the Fed’s 2% inflation target, and Fed policy is already somewhat restrictive."

"US July PCE to show inflation contained and consumer spending activity flat. Headline PCE is seen rising 0.1% m/m vs. -0.1% in June and 3.6% y/y vs 3.7% in June. Core PCE is expected to rise 0.2% m/m vs. 0.1% in June and remain at 3.3% y/y for a second straight month. Real personal spending is expected at 0.0% m/m vs. 0.4% in June."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

• The Canadian Dollar weakens after trade negotiations between Washington and Ottawa collapse and fresh tariffs are announced.
• Donald Trump threatens 50% tariffs on Canadian automobiles, auto parts and steel starting in January.
• The United States is set to broaden sanctions against Iran, potentially supporting Oil prices and limiting weakness in the Canadian currency.

USD/CAD extends its advance on Monday, trading around 1.3830 at the time of writing, up 0.52% on the day. The Canadian Dollar (CAD) comes under selling pressure after trade negotiations between the United States (US) and Canada collapse, while the prospect of a fresh tariff escalation supports the US Dollar (USD).

Trade tensions intensify after negotiations between Washington and Ottawa broke down on Friday. The United States imposes 50% tariffs on some Canadian products, while Canadian Prime Minister Mark Carney vows to retaliate “dollar for dollar” starting September 8. Carney says his government prefers to walk away from the negotiations rather than accept a bad deal.

US President Donald Trump further raises the pressure on Monday, announcing that tariffs on all Canadian cars, trucks, automotive parts and steel will be increased to 50% starting January 1, 2027. Trump also accuses Canada of taking advantage of its trade relationship with the United States for years and encourages affected companies to move production to US territory to avoid tariffs.

The latest escalation reinforces concerns about the outlook for the Canadian economy, which is heavily dependent on trade with its US neighbor. Uncertainty surrounding trade relations between the two countries therefore represents an additional headwind for the Canadian Dollar.

Meanwhile, geopolitical developments in the Middle East could provide some support to the Canadian currency through Oil prices. According to Reuters, the US Department of the Treasury is expected to announce on Monday a broader scope for secondary sanctions targeting countries and entities that continue to do business with Iran.

The new strategy is expected to allow the US to sanction certain activities in targeted Iranian sectors and aims to push Tehran’s trading partners to choose between maintaining business ties with Iran and retaining access to the US Dollar-based financial system. US Treasury Secretary Scott Bessent is due to provide further details on Monday.

The prospect of tighter sanctions comes as the conflict involving Iran has disrupted the Strait of Hormuz and Gulf energy exports for nearly six months. A further escalation that restricts energy flows could support Oil prices. As Canada is a major Oil exporter, higher energy prices generally tend to support the Canadian Dollar and could therefore limit further gains in USD/CAD.

USD/CAD technical analysis

In the four-hour chart, USD/CAD trades at 1.3829, keeping a mildly bearish near-term tone as it holds under the downtrend resistance line at 1.3846 and the 100-period simple moving average (SMA) at 1.3929, with the 200-period SMA higher at 1.4009 reinforcing the capped structure. The Relative Strength Index (RSI) around 53 has recovered from earlier oversold readings but now points to more neutral momentum, suggesting that any rebound could struggle while these moving averages remain overhead.

On the topside, immediate resistance is seen at the trend-line area around 1.3846, ahead of the 100-period SMA at 1.3929 and the 200-period SMA near 1.4009, which together define a broader supply band. On the downside, the key structural floor stands at the horizontal support line near 1.3732; a decisive break below this level would likely extend the current corrective phase toward lower figures.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Scotiabank strategists Shaun Osborne and Eric Theoret highlight that the Euro (EUR) is softer against the Dollar (USD) after an almost 3% rally from late July, with price action turning defensive. German IFO data and rising political risks, including widening Bund–BTP spreads and French budget talks, are in focus. Technically, EUR/USD remains bullish, with resistance above 1.1700 and support around 1.1580/1.1600.

Euro soft after August surge

"The EUR is soft and entering Monday’s NA session with a fractional 0.1% decline vs. the USD. Price action is somewhat defensive and notable in the aftermath of the EUR’s impressive near-3% rally from late July, opening up the possibility of a more meaningful reversal."

"Fundamental releases have been limited and this week’s highlight will be the German IFO business sentiment figures scheduled for Tuesday. Yield spreads have pulled back slightly, eroding some of the EUR’s support as US Treasury yields have climbed over the past week or so."

"Political risk appears to be rising as we note the renewed widening in intra-euro area government bond yields with a blowout in the bundBTP spread. Market participants are eyeing this week’s French budget negotiations as well as polls showing solid potential results for far right candidate Marine Le Pen."

"Bullish – the RSI is bullish and hovering around the overbought threshold at 70, pulling back slightly from last week’s peaks around 73."

"Recent price action has revealed clear near-term resistance above 1.1700 following a notable break above the 200 day MA (1.1631). We see limited additional resistance ahead of 1.1800 and see near-term support in the 1.1580/1.1600 area. "

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• Gold extends last week’s strong rally and climbs to its highest level since May 15.
• Traders await US PCE inflation data and Fed Chair Kevin Warsh’s Jackson Hole speech later this week.
• XAU/USD keeps a bullish technical bias above key daily moving averages, though the RSI signals overbought conditions.

Gold (XAU/USD)extends its intraday advance on Monday, building on the strong rally seen last week following the US Treasury’s buyback announcement. At the time of writing, XAU/USD trades around $4,674, up nearly 1.5% on the day at levels last seen on May 14.

The Treasury’s decision to increase its liquidity-support buybacks for longer-dated government bonds weighed heavily on the Greenback, with the US Dollar Index (DXY) plunging to a three-month low. Gold received a double boost from the move, benefiting from a weaker USD while also attracting safe-haven demand as investors focused on concerns surrounding US fiscal policy and rising government debt.

Strategists at OCBC highlight that “USD debasement has re-emerged as a market theme” after the US Treasury unexpectedly expanded its long-end buyback programme, a move they say signals “discomfort with the recent rise in long-dated yields.” They add that the “resulting unwind of US steepener positions has likely reinforced other debasement trades, including a weaker USD, a rebound in gold and higher US inflation breakevens.”

The Greenback is modestly firmer on Monday after last week’s sharp decline. The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, trades around 98.95, up about 0.10% on the day.

Geopolitical tensions are back in focus as US Treasury Secretary Scott Bessent prepares to announce fresh sanctions on Iran. Tehran has warned that if Washington’s “economic war” continues, it could halt Oil exports through the Strait of Hormuz and elsewhere in the Persian Gulf, keeping energy-driven inflation risks at the forefront.

Markets will turn their focus later this week to the July Personal Consumption Expenditures (PCE) Price Index due on Wednesday before Federal Reserve (Fed) Chair Kevin Warsh speaks at the Jackson Hole Symposium on Friday.

Investors will watch the PCE report closely to assess whether the recent moderation in inflation is enough for the Fed to leave interest rates unchanged again at its September meeting, with the CME FedWatch Tool showing around a 38% probability of a rate hike.

Technical analysis: Buyers hold the upper hand as RSI turns overbought

XAU/USD maintains a bullish near-term bias as price holds above both the 200-day simple moving average (SMA) and the 100-day SMA. The metal is advancing within a strong uptrend, supported by a moderately firm Average Directional Index at 33, while the Relative Strength Index (RSI) on the daily chart at 72 has entered overbought territory, hinting that upside momentum is stretched but still dominant.

A positive Moving Average Convergence Divergence (MACD) reinforces the constructive tone, with the broader structure favoring further gains as long as price stays above the key moving averages and upper Fibonacci supports.

On the topside, initial resistance is located at the 78.6% Fibonacci retracement at $4,685, followed by the cycle high anchor near the 100.0% retracement at $4,886. On the downside, first support is seen at the 61.8% retracement at $4,528, closely backed by the 200-day SMA at $4,517, forming a nearby demand cluster.

Deeper support levels emerge at the 50.0% retracement at $4,417 and the 100-day SMA at $4,380, with additional structural floors at the 38.2% retracement at $4,307 and the 23.6% retracement at $4,170, where buyers would likely attempt to defend the broader bullish trend if a corrective pullback unfolds.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Royal Bank of Canada (RBC) analyzes new Section 338 U.S. tariffs on Canadian exports, noting a 50% rate on goods representing about 5% of Canada’s exports to the United States. The bank argues the measures are not large enough to derail Canada’s economic growth, but warns they significantly impact sectors like plastics, electrical machinery and wood products and add uncertainty to broader CUSMA trade relations.

New U.S. tariffs and Canadian response

"As we argued a month ago when the tariffs were initially announced, the size of the tariffs is likely not large enough to derail Canada’s economic growth backdrop."

"Still, the measures mark a re-intensification of U.S. tariff threats/measures, and concentrated specifically on Canada."

"Plastic products, electrical machinery, furniture and wood product sectors are among the most significantly impacted by the new measures – and regionally that means a higher concentration of economic impact in Quebec, BC, and Ontario."

"Because the tariff rate is so high and applies only to Canada, purchases of these products from Canada would be prohibitively expensive."

"But there is likely more potential for trade flows to reorient within North America to avoid increased tariff costs with these measures than some of the other sector specific tariffs imposed to-date."

"We do not expect the broader macroeconomic impact of these new tariffs to be enough to push the Bank of Canada to seriously consider pivoting to interest rate cuts."

"Tariff economic growth headwinds are still relatively narrowly based in a smaller number of highly impacted industries and fiscal (government tax and spending) policy is still better suited to provide targeted relief than blanket changes in interest rates from the central bank – and there are reports that fiscal supports will follow the imposition of this latest tariff round."

"Still, the intensification of trade uncertainty and recent moderation in underlying (excluding energy products) inflation trends also has increased the likelihood that the BoC will not hike interest rates this year."

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• EUR/USD trades flat near mid-May highs as the US Dollar steadies after last week’s sharp volatility.
• Geopolitical tensions are in focus as the US prepares fresh sanctions against Iran later on Monday.
• The US PCE report on Wednesday and Warsh’s Jackson Hole speech on Friday will be closely watched this week.

EUR/USD trades flat on Monday as the US Dollar (USD) steadies and markets settle into a calmer tone following the sharp volatility triggered by the US Treasury’s surprise buyback announcement last week. At the time of writing, the pair trades around 1.1670, hovering near levels last seen in mid-May.

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is attempting to reclaim 99.00, trading around 98.95.

Despite some near-term stabilization in the Greenback, the broader backdrop remains fragile after the Treasury’s decision revived concerns over US fiscal policy and rising government debt.

Trading is relatively subdued on Monday as investors adopt a wait-and-see approach ahead of the first major risk event of the week. The United States is preparing to announce a fresh package of sanctions against Iran later on Monday, which Treasury Secretary Scott Bessent has described as an “economic D-Day.” Iran has maintained a hard stance in response, with Foreign Ministry Spokesperson Esmaeil Baghaei saying that “Iran will use all its bilateral capabilities to confront US economic sanctions.”

Later this week, the focus shifts to the US Personal Consumption Expenditures (PCE) Price Index on Wednesday. Another soft inflation reading, following the recent moderation in CPI and PPI, could strengthen expectations that the Federal Reserve (Fed) will leave interest rates unchanged in September and put fresh pressure on the US Dollar. Fed Chair Kevin Warsh’s remarks at the Jackson Hole Symposium on Friday will provide another test for those expectations.

On the Euro side, the economic calendar is relatively quiet in the first half of the week, leaving EUR/USD largely driven by US Dollar dynamics. On the monetary policy front, markets widely expect the European Central Bank (ECB) to raise interest rates in September.

Eurozone watches inflation relief as ECB leans on anchored expectations

Strategists at BNY Mellon argue that “inflation remains the core issue in Europe,” even as activity shows signs of improvement. They caution that “tightening too early would be a mistake,” noting that the ECB’s latest inflation survey indicates expectations are “anchoring more firmly,” while the Euro is “near cyclical highs and already doing some of the tightening.”

Against this backdrop, BNY Mellon highlights that “Europe’s week centers on inflation relief,” with French and Spanish flash CPI on Friday the key releases, and “Spain still running much hotter than France.” German unemployment data on Friday will also offer an important “labor-market read for the Eurozone’s largest economy,” helping to frame the ECB’s next steps.

DBS Bank strategist Philip Wee argues that Fed Chairman Kevin Warsh’s rejection of forward guidance is amplifying market volatility and complicating the policy mix with the Treasury. He warns that without a clear framework, reduced guidance could be seen less as a return to market price discovery and more as a source of uncertainty for financial conditions and Fed independence.

Warsh’s strategy and market volatility

"The Kansas City Fed’s Jackson Hole Economic Policy Symposium on August 27-29 is shaping up to be an important test for Fed Chairman Kevin Warsh, whose rejection of forward guidance has contributed to increased market volatility."

"Warsh needs to explain how a Fed without forward guidance intends to anchor expectations, how much tightening the Fed is prepared to tolerate through long-term yields, and the policy boundary between the Fed and the Treasury."

"The market needs a coherent policy framework."

"Without one, reduced forward guidance risks becoming less a return to market price discovery and more a source of uncertainty."

"While Warsh and Bessent need to work together to stabilize financial markets, they must ensure that their efforts do not raise concerns about Fed independence by casting the Treasury as activist and dominant."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

The United States (US) Treasury is expected to broaden the scope of secondary sanctions it can impose on entities and countries that maintain business ties with Iran, reports Reuters.

The US administration aims to limit Tehran’s business ties with this measure and force the Middle East country to keep the nearly six-month conflict that maintains traffic through the Strait of Hormuz restrained.

US Treasury Secretary Scott Bessent is expected to announce more details of the Iran sanctions in a press conference on Monday at 17:00 GMT.

TD Securities strategists expect United States (US) output growth to move sideways in 2026, with their Gross Domestic Product (GDP) tracker at 2.5% quarter-on-quarter annualized and full-year growth slightly below trend at 2.1% Q4/Q4. They see a still-low 4.3% unemployment rate by late 2026, but warn that the Iran-related Oil shock and higher input costs pose stagflationary and recession risks.

Growth stabilizing but below trend

"All in, data seem to be looking up in the middle of Q3 after a less auspicious showing in July. Indeed, as a result our GDP growth tracker moved 0.4pp higher over the past week to 2.5% q/q AR, which would represent an improvement vs output growth in Q2."

"We expect output growth to move sideways this year, reflecting the lingering impact of the oil shock. The Iran conflict presents stagflationary risks, which we expect will keep the Fed on hold for the entire year. AI and high-income consumers have supported underlying growth."

"GDP growth will likely remain slightly below trend in 2026, ending with 2.1% Q4/Q4. Stable growth should result in a still-low unemployment rate of 4.3% by Q4 2026. The labor market has signaled stabilization, and while we expect that to continue, rising input costs from the oil shock create further uncertainty that could weigh on hiring."

"We assign 25% odds to a US recession over the next year."

"The outlook will be fluid amid uncertainty around developments in Iran and the Trump administration's execution of new trade, fiscal, regulatory, and immigration policies. New developments in financial markets and further escalation of geopolitical conflicts remain key risks for our economic projections over the forecast horizon."

"Core PCE inflation is expected to hit the Fed's strike zone for a second consecutive report in July, despite picking up to 0.24% m/m. Headline prices likely rose by a tamer 0.15%. More importantly, we expect the market-based core PCE to stay contained at 0.13% m/m.

Separately, weak retail sales data point to slowing in consumer spending to 0.2% m/m in July and a softer 0.1% in real terms. We look for gradual disinflation to resume in 2027."

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MUFG's Derek Halpenny argues the Canadian Dollar’s (CAD) reaction to the new US tariffs on USD 20bn of Canadian exports will hinge on escalation risks rather than the initial measures. CAD has underperformed in G10 after talks broke down, and Halpenny warns that tit-for-tat tariffs and fading support from higher Oil could intensify CAD downside if the dispute remains unresolved.

Tariff spiral risk weighs on Canadian Dollar

"There was always a risk of a breakdown in negotiations on reaching a deal to avoid a US import tariff on USD 20bn worth of Canada exports, so we are unlikely to see a large sell-off of the Canadian dollar in response to the breakdown, confirmed late on Friday night. However, CAD is the clear underperformer in G10 so far today."

"The medium-term FX and broader market response in Canada will be dictated not by this breakdown but by the evidence that this could escalate quickly and end with investors pricing greater economic harm for Canada. By promising to match dollar for dollar that risk of spiral is real."

"At this juncture the tariff of 50% on USD 20bn worth of US imports from Canada account for just 5% of Canada’s exports to the US. The tariffs took effect on Saturday morning at 12:01am applying to a range of goods from beer, wine, spirits, milk products and hockey equipment."

"Covering the post-covid period, starting in 2022, USD/CAD and the 2-year swap rate spread has moved very tightly together over most of that period and the current 2-year US-CA swap spread suggests USD/CAD has over-extended to the downside and should currently be trading a little above the 1.4000 level, or around 2.0% higher than the spot close on Friday."

"A quick retaliation by the US will undoubtedly force PM Carney to follow “dollar for dollar” that could see investor confidence hit more severely. CAD downside risks will intensify the longer there is no resolution to this escalating trade war."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)