Dollar Weakens Amidst Fiscal Worries

(RTTNews) - The U.S. dollar declined against major currencies during the week ended August 21 amidst a fresh spell of fiscal worries triggered by the U.S. debt crossing $40 trillion. Losses were contained as the minutes of the Federal Open Markets Committee released on Wednesday suggested a rate hike in September could not be ruled out.

During week ended August 21, the U.S. dollar inter alia declined against the euro, the British pound, the Australian dollar, the Japanese yen, the Swiss franc, the Canadian dollar as well as the Swedish krona. As a result, the Dollar Index which measures the Dollar's strength against a basket of 6 currencies dropped almost a percent on a weekly basis. Here is a quick recap of the dollar's trajectory during the week ended August 21.

During the past week, the Dollar Index traded between the weekly high of 99.69 recorded on Wednesday and the weekly low of 98.56, recorded on Thursday. The index eventually closed the week's trading at 98.80, implying a decline of 0.87 percent from the level of 99.67 on August 14.

Currency markets remained impacted by the chaos in bond markets attributed to the massive spike in long-tenor yields. Thirty-year sovereign bond yields in the U.S. had on Tuesday touched a high of 5.335 percent, the highest level since 2007. Unabated geopolitical tensions in the Middle East and worries about the total public debt in the U.S. rising above $40 trillion pushed yields higher. The liquidity boost announced by the U.S. Treasury Dept in response to the spike in yields also weighed on sentiment as markets worried about the efficacy of such short-term measures and the interventionist approach adopted.

Boosted by the dollar's weakness, the EUR/USD pair jumped 0.94 percent during the week ended August 21. From the weekly low of 1.1562 touched on Monday, the pair climbed to a high of 1.1712 on Friday. The pair eventually closed the week at 1.1679, versus 1.1570 a week earlier.

The British pound also rallied 0.73 percent against the greenback during the week ended August 21. The GBP/USD pair which had closed at 1.3535 on August 14 closed trading for the week ended August 21 at 1.3634. The weekly trading range was wider, between a low of 1.3518 recorded on Tuesday and a high of 1.3677 on Friday. Data released during the week had showed an unexpectedly steady unemployment rate and an in-line inflation reading.

The Australian Dollar surged 1.24 percent against the U.S. Dollar during the past week amidst the greenback's retreat, attributed to renewed fiscal worries in the U.S. The AUD/USD pair closed the week ended August 21 at 0.7172 versus 0.7084 recorded a week earlier. During the week, the pair oscillated between a low of 0.7066 recorded on Wednesday and the high of 0.7181 recorded on Friday.

The U.S. dollar declined against the Japanese yen also during the week ended August 21 amidst an acceleration in inflation readings in Japan to the highest level since December 2025. Data released during the week showed Japan's annual inflation rate accelerating to 1.9 percent in July, from 1.6 percent in June. The USD/JPY pair closed the week at 158.95 versus 159.32 a week earlier, registering a decline of 0.23 percent. During the week, the pair oscillated between the high of 159.79 recorded on Tuesday and the low of 158.02, recorded on Thursday.

Amidst fresh trade tariff jitters, the short-lived impact of U.S. Treasury's bond buyback announcement and persisting geopolitical tensions, the Dollar Index has added 0.18 percent from Friday's closing level of 98.80. The index is currently trading at 98.98, after ranging between 98.81 and 99.03 on Monday. Anxiety ahead of the release of the PCE-based inflation readings as well as the updates to the GDP and payrolls data due during the week swayed sentiment. Markets also awaited developments related to the U.S.- Iran war, fiscal deficit management as well as Fed Chair's speech at Jackson Hole symposium later in the week.

Amidst the dollar's rebound, the EUR/USD pair is currently trading 0.09 percent lower at 1.1666 versus 1.1679 on Friday. The GBP/USD pair is currently trading near 1.3636 versus 1.3634 on Friday, implying a decline of 0.07 percent.

The AUD/USD pair is currently trading 0.14 percent lower at 0.7161 versus 0.7172 on Friday, as markets brace for the release of the minutes of the Reserve Bank of Australia. The USD/JPY pair is now trading 0.05 percent higher at 159.06 as compared with the level of 158.95 recorded at the end of the previous week.