Dollar’s Momentum Falters: Analysts Question Sustainability

The US dollar slipped to a two‑week low after weaker‑than‑expected jobs data. Non‑farm payrolls rose by just 57,000 in June, while the prior months of April and May were revised down by a total of 74,000. The dip in the unemployment rate to 4.2%4 a shrinking labour force, not from stronger hiring.

Those figures drove down market expectations for a July rate hike from a shrinking labour force, not from stronger hiring.

Those figures drove down market expectations for a July rate hike from 30% to 20%, cut the September‑year‑end odds from 64% to 53%, and lowered the year‑end probability from 83% to 78%. The dollar came under pressure as a result. Earlier, speculators had built up net long positions in the greenback to their highest level in 18 months, creating a crowded trade. Profit‑taking then sparked the EUR/USD rebound.

Credit Agricole notes that the dollar looks overbought and overvalued, suggesting the Federal Reserve may be less hawkish than priced in. Eurizon SLJ Capital adds that the recent USD index rally has exhausted its upside, leaving little room for further gains and signalling a time to lock in profits.

TD Securities points out that accelerating global GDP and shrinking risk premiums will narrow the US‑foreign interest‑rate gap, likely weakening the greenback in the second half of the year. Moreover, a calmer international backdrop—following the easing of tariff tensions and Middle‑East hostilities—could also exert downward pressure on the dollar.

The steepest drop in USD/JPY since Japan’s April‑May currency interventions has revived debate over whether authorities have stepped back into the market. Was the move driven by official FX intervention, or did traders simply unwind their short‑dollar bets on their own?

A Reuters report and comments by Atsushi Mimura set off the USD/JPY sell‑off. According to the news agency, Japan has shifted tactics: instead of warning of possible intervention—as it did in late April—it now prefers a surprise approach. The Vice Minister of Finance for International Affairs said the earlier intervention was warranted and that the United States does not oppose, and even supports, such measures.

Summary: Soft US economic data has heightened pressure on the dollar, while speculation about possible Japanese intervention has driven a sharp decline in USD/JPY.

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