The U.S. dollar index rose on Monday, supported by safe-haven demand after U.S. Treasury Secretary Scott Bessent outlined plans to isolate Iran from the global economy. The move was tempered by market expectations around federal funding mechanics and by falling oil prices, which eased near-term inflation concerns and kept the Federal Reserve outlook relatively dovish.
In currency markets, the euro slipped and the Japanese yen weakened modestly. In commodities, gold ended higher while silver fell, as lower crude oil boosted the appeal of precious metals and expectations that the Treasury could expand buybacks of longer-dated securities added further support.
Key takeaways
- Dollar higher: The U.S. dollar index rose by about 0.22% on safe-haven demand tied to U.S. Iran sanctions plans.
- Catalyst: Treasury Secretary Bessent’s announcement to sever Iran’s “most vital lifelines” from global channels, alongside risk-off equity trading.
- Fed pressure eased: WTI crude fell more than 2%, reducing inflation expectations and limiting upside momentum in the dollar.
- Gold up, silver down: Gold settled near a 3.5-month high, while silver declined as dollar strength capped some of the move.
- Policy expectations remain front and center: Traders continue to price in rate-hike odds for the next FOMC, ECB and BOJ meetings.
What drove the dollar higher
The U.S. dollar gained on Monday as investors leaned toward safety after Bessent said the U.S. will launch a campaign to sever Iran from the global economy. According to the plan outlined by the Treasury secretary, countries that do business with Iran would face U.S. sanctions, with a defined timeline for shutting down economic cooperation. The Treasury also highlighted five “most vital lifelines,” including digital assets, technology, gold, aviation and shipping.
Risk appetite deterioration helped the dollar as well: Monday’s weaker stock performance increased demand for liquidity. However, the dollar’s advance was not broad or aggressive, with market participants balancing the geopolitical risk premium against shifting expectations for inflation and monetary policy.
Further limiting dollar strength, a CNBC report said the Treasury could use funds from the Treasury General Account—reported as $935 billion on August 20—to finance expanded buybacks of higher-yielding, older government securities. While such actions may not directly change the policy path, they can influence market perceptions about Treasury funding dynamics and longer-dated supply and demand.
Oil moves and rate expectations kept currencies in check
Crude oil weakened sharply on Monday, with WTI dropping by more than 2%. The decline is important for currency markets because it tends to lower inflation expectations—an input that influences the interest-rate outlook and, in turn, the relative appeal of holding dollars.
On the policy front, markets are pricing in a meaningful probability of a Fed rate increase at the next FOMC meeting on September 15–16, with the article citing a 43% probability of a 25 basis point hike. In addition, a Chicago Fed national activity measure released for July fell to -0.08 from -0.14, slightly stronger than expectations of -0.09, a detail that suggests growth momentum may not be deteriorating as sharply as feared.
Euro and yen: oil supportive, rates a key divider
The euro fell by about 0.14% on Monday as dollar strength weighed on the pair. The article also pointed to comments by ECB Executive Board member Piero Cipollone, who said that in the event of a supply-side shock such as an oil shock, raising interest rates to stabilize inflation around target could dampen economic growth already affected by the shock.
Even so, euro losses were limited by the same oil decline that pressured inflation expectations. The article noted Europe’s heavy reliance on imported energy, making lower crude prices supportive for the eurozone economy and the currency.
Against the dollar, the yen weakened modestly, with USD/JPY rising about 0.13%. The article attributed the move to continued pressure from interest-rate differentials: the BOJ’s policy rate is 1.00%, well below the Fed’s target range of 3.50% to 3.75%. Still, the yen’s decline was capped by several factors, including support from lower Treasury note yields and expectations for further BOJ tightening in either September or October.
The article also referenced underlying yen support from increased expectations of a BOJ rate hike at the September 18 meeting and from recent coordinated U.S.-Japan intervention, along with concerns that additional intervention could follow if the yen remains weak. Markets are pricing an 80% chance of a 25 basis point BOJ hike at the next policy meeting, according to the article.
Gold jumps while silver slips on lower inflation fears
Precious metals settled mixed. October COMEX gold closed up by 0.35%, while September COMEX silver finished down about 1.35%. Gold’s rise, described in the article as reaching a 3.5-month high, was supported by the broad commodity backdrop: a more than 2% drop in crude oil lowered inflation expectations, a setup that can favor non-yielding assets like gold if it reduces the likelihood of tighter policy.
The article also highlighted a key cross-asset channel from the CNBC report: the Treasury’s potential use of the Treasury General Account to fund expanded buybacks of longer-dated U.S. government securities. The coverage was framed as increasing concerns around dollar debasement, which in turn can raise demand for precious metals as a store of value.
At the same time, the dollar’s strength limited gold’s upside. Silver, which often trades more like a high-beta industrial metal than gold, was pressured by that same dollar factor as the session unfolded.
Fund flows added another layer of support. The article cited higher long holdings in gold exchange-traded funds to a three-month high on Monday, while long silver ETF holdings rose to a four-month high as of last Wednesday. It also pointed to continued central-bank buying, noting that China’s PBOC added 640,000 ounces of gold reserves in July to bring total holdings to 76.08 million troy ounces—its 21st consecutive monthly increase.
Bigger picture: geopolitics meets central-bank pricing
The dollar’s direction on Monday reflected a tug-of-war between geopolitics and rates. The Iran isolation plan boosted safe-haven demand, but easing inflation signals from oil and expectations around funding-related Treasury actions helped limit how far the dollar could run.
For precious metals, the same oil-driven inflation dynamics supported gold, while ETF positioning reinforced the bid. Investors will likely stay focused on how oil prices evolve and whether policy expectations shift further for the next Fed, ECB and BOJ meetings.
Looking ahead, market participants will watch incoming U.S. data for growth and inflation signals, alongside central-bank communications as traders weigh the remaining probability of rate moves. The next scheduled policy and data milestones—Fed on September 15–16, ECB on September 10, and BOJ on September 18—could determine whether the dollar’s safe-haven premium persists or fades.
