By Jiaxing Li and Johann M Cherian
Aug 25 (Reuters) - The U.S. dollar held steady on Tuesday, but remained at risk of further declines as investors parsed Washington's expanded sanctions against Iran and renewed efforts to ease pressure on longer-dated Treasury yields.
The currency had come under pressure late last week after U.S. Treasury Secretary Scott Bessent unnerved investors by saying the Treasury would double the size of quarterly repurchases of longer-dated bonds, sparking concerns about a shift
to a more interventionist strategy to curb the rise in borrowing costs ahead of mid-term elections later this year.
A CNBC report on Monday that the Treasury could use part of its cash balance to buy back longer-dated bonds helped steady long-term yields, although investors see a confluence of factors that could keep the dollar under pressure through the rest of the year.
"Trump wants borrowing costs down. I imagine he appreciates the fact that the Fed can only really control the overnight rates. And so why wouldn't the Treasury get in there and attempt to push yields at the longer end down?" said David Morrison, a senior market analyst at Trade Nation.
Morrison also added that a softer dollar would also work in favor of the administration that wants more U.S. companies to export.
Further, traders have also pared expectations for an imminent interest rate hike by the Federal Reserve, with probabilities for a 25 basis point rise in September now standing at around 40%, down from 67% earlier this month, the CME Group's FedWatch Tool showed.
The euro was a touch softer at $1.1663, on track for a second day of decline but after hitting a three-month peak last week. Sterling was a touch stronger at $1.3635.
Investors also avoided large bets as the expansion of sanctions against Iran unveiled on Monday did not have any mention of major trade partners such as China, although Bessent warned countries to cut business ties with Tehran or risk being forced out of the dollar-based financial system.
Currency traders also processed the implications of the trade dispute between the U.S. and Canada. The Canadian dollar weakened for a second day against its U.S. counterpart, with the U.S. dollar up 0.1% at C$1.3860, having gained 0.6% on Monday to mark biggest daily gain in two months.
Elsewhere, the dollar climbed 0.1% on the Japanese yen to 159.215. The yen has been in something of a holding pattern in recent weeks, having given back some of its intervention gains, but is still well off a multi-decade low of about 164 it hit before Japanese authorities stepped into markets.
Worries about the broader weakness in the dollar aided gains in the cryptocurrency market.
Bitcoin briefly crossed the $80,000 mark for the first time since mid-May, taking its gains for the month to nearly 30%, while ether edged up and was close to its January high.
(Reporting by Jiaxing Li in Hong Kong and Johann M Cherian in Bengaluru; Editing by Andrew Heavens and Nick Zieminski)
