Long-End Treasury Yields Rebound - US/Iran Economic Warfare Continues

OVERVIEW : Thursday, August 20th, 26’

US-Iran tensions continue to rise, with Trump announcing sweeping economic measures targeting Iran and threatening significant consequences for countries and entities providing Tehran with financial or economic support. Trump also said the chances of an agreement had become slim, while an adviser to Iran’s Supreme Leader suggested withdrawal from the NPT as a potential response. The escalation kept crude prices moving higher, with gains extending as the day progressed. US long-end yields rebounded, reversing most of the downside seen after Wednesday’s Treasury buyback announcement, as fiscal concerns and geopolitical uncertainty returned to focus. Bessent said the buyback was intended to signal that the long end is thinly traded and noted that sizes could exceed USD 4bln. The combination of higher yields and geopolitical risk weighed on US equities, which sold off broadly. DXY saw choppy price action but remaining firm into the close, Gold closed broadly flat, while Bitcoin moved toward $73k.

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US DOLLAR

USD remained modestly softer for most of the European session, before trimming losses into the US close and closing marginally stronger on the day. The Dollar initially remained under pressure following yesterday’s broad-based weakness after the surprise Treasury announcement, but the reversal in long-end yields helped support USD demand later in the day. The broader backdrop remained supportive for the Dollar as US-Iran tensions escalated, with Trump announcing sweeping economic measures against Iran and warning of consequences for entities providing support to Tehran. On the data front, US initial jobless claims came in better than expected at 206k versus 210k

Data:

  • US Initial Jobless Claims (Aug/15) 206.0K vs. Exp. 210K (Prev. 212.0K).
  • US Continuing Jobless Claims (Aug/08) 1799.0K vs. Exp. 1790K (Prev. 1781.0K).
  • US Philadelphia Fed Manufacturing Index (Aug) 47.4 vs. Exp. 25 (Prev. 41.4).
  • Philly Fed Business Conditions (Aug) 73.6 (Prev. 34.4).
  • US Philly Fed Employment (Aug) 27.9 (Prev. 10.0).


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EURO

EUR remained marginally firmer throughout the day, with the single currency holding its gains despite Brent pushing higher. German PPI came in notably above expectations, with the annual rate rising to 3.0% versus 2.7% expected, while the monthly measure increased 1.1% versus 0.7% expected, providing some support to the inflation backdrop.

Data:

  • European Construction Output (Jun YY) -0.7% (Prev. 0.7%).
  • German PPI (Jul YY) 3.0% vs. Exp. 2.7% (Prev. 1.8%).
  • German PPI (Jul MM) 1.1% vs. Exp. 0.7% (Prev. -0.3%).


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GREAT BRITISH POUND

GBP was notably firmer on the day, with Sterling attracting demand on the back of its favourable carry profile.

Data:

  • UK CBI Industrial Trends Orders (Aug) -25 vs. Exp. -40 (Prev. -45).


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AUSTRALIAN DOLLAR

AUD remained soft following the weaker-than-expected Australian jobs data, with employment falling 15.8k versus +15k expected and unemployment rising to 4.5% from 4.4%. The initial reaction kept the Aussie under pressure, while full-time employment still increased 16.3k and participation held at 66.9%. AUD subsequently pared back its losses as it caught a bid in the US session, leaving the currency marginally softer on the day.

Data:

  • Australian Employment Change (Jul) -15.8K vs. Exp. 15K (Prev. 76.3K)
  • Australian Full Time Employment Change (Jul) 16.3K (Prev. 29.3K)
  • Australian Unemployment Rate (Jul) 4.5% vs. Exp. 4.4% (Prev. 4.4%)
  • Australian Participation Rate (Jul) 66.9% vs. Exp. 66.9% (Prev. 67.0%)


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CANADIAN DOLLAR

CAD remained supported on the day, helped by firmer oil prices and increasingly constructive US-Canada trade rhetoric. Trump said he believes the US has a deal with Canada that is good for everyone, while reports pointed to the US lowering tariffs on Canadian autos to 15% from 25%. PM Carney also said Canada is moving toward a trade deal with the US, noting significant progress in talks. The more constructive tariff backdrop added to the positive CAD tone alongside the supportive oil market.

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NEW ZEALAND DOLLAR

NZD continued to outperform on the day, with high-beta currency attracting strong demand as safe-haven flows faded.


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JAPANESE YEN

JPY continued to be sold off on the day, with rising energy prices weighing on Japan’s terms of trade and keeping pressure on the Yen.

Data:

  • Japanese Trade Balance (Jul) -634.5B vs. Exp. -680.0B (Prev. -409.9B)
  • Japanese Exports (Jul YY) 23.2% vs. Exp. 19.9% (Prev. 19.3%)
  • Japanese Imports (Jul YY) 27.8% vs. Exp. 26.5% (Prev. 25.4%)


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SWISS FRANC

CHF saw two-way price action on the day, closely tracking USD flows in the opposite direction. The Franc initially found support before continuing to sell off as the USD retraced into the US session.