Dollar Struggles to Gain Momentum Amid Iran Sanctions and Fiscal Anxieties

The U.S. dollar struggled to gain momentum on Tuesday, hovering near three-month lows as foreign exchange desks weighed Washington's expanded sanctions against Tehran against unresolved U.S. fiscal anxieties and a cooling yield advantage.

The Dollar Spot Index edged up 0.1% to 99.065, following a modest 0.2% tick higher overnight. Despite the slight bounce, the greenback remained anchored within striking distance of its three-month low of 98.5 touched last week, reflecting a reluctant market posture toward aggressive long-dollar exposure.

The dollar's listless price action underscores how quickly diplomatic headlines are losing traction against top-down macro constraints. While Treasury Secretary Scott Bessent warned that foreign firms continuing business with Iran face complete exclusion from the dollar-clearing system, currency allocators chose instead to focus on the relentless growth of U.S. sovereign debt obligations and the threat of persistent cost-push inflation.

The British pound outperformed its G10 peers, inching higher for a fifth consecutive trading session as resilient UK gilt yields and firm service-sector pricing continue to support sterling. The Euro traded flat at $1.1600, holding onto recent gains as regional traders digested a stronger-than-expected 1.0% annual GDP expansion in Germany.