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Dollar stabilizes as vague secondary sanctions talk and lower yields linger

Commerzbank warns hedge funds’ leveraged basis trades in US Treasuries and rising US debt could limit upside for the dollar, despite the drop in yields.

Reported · Written up by our desk · Major Pairs

Commerzbank currency strategist Volkmar Baur said the US dollar has stabilized after US Treasury Secretary comments on possible secondary sanctions were described as vague, with no details on affected countries or timing, which left markets waiting rather than repricing immediately, according to FXStreet.

Baur also pointed to recent moves in US rates, noting that while higher interest rates typically support the dollar and falling rates weigh on it, the pattern has been inconsistent in recent months, with bond market episodes sometimes coinciding with a weaker dollar.

He cited a prior period labeled “Liberation Day,” where sharp rises in yields were paired with a weaker dollar, and argued that interventions in other markets, including yen-related actions and expanded buybacks of illiquid long term Treasuries, have tended to come at the expense of the dollar.

Baur added that the US debt outlook continues to rise, and that new buyers for Treasuries must be found, which he said is not supportive for the currency in the current environment.

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