- A decline in the USD index may signal the start of a longer‑term reversal.
- Speculation about potential currency interventions caused USDJPY to drop sharply.
The U.S. dollar slid to a two‑week low following weaker‑than‑expected labour market data. Non‑farm payrolls increased by 57,000 in June, with downward revisions of 74,000 for April and May. The unemployment rate dipped to 4.2% as the labor force contracted rather than expanded.
These figures reduced the market’s expectations for a July rate hike from 30% to 20%, for a September hike from 64% to 53%, and for a full‑year hike from 83% to 78%, exerting downward pressure on the dollar. Previously, speculators had raised their net long positions in the U.S. currency to an 18‑month peak, concentrating the trade. Profit‑taking subsequently drove the EUR/USD rally.
Credit Agricole argues that the U.S. dollar is overbought and overvalued, suggesting the Federal Reserve may be less hawkish than markets assume. Eurizon SLJ Capital notes that investors have already extracted maximum gains from the USD rally, and that current optimism is fully priced in, signalling a timely profit‑taking phase.
TD Securities contends that accelerating global growth and narrowing risk premiums will compress the U.S. interest‑rate differential, weakening the greenback in the second half of the year. Additionally, stabilisation of the international environment after tariff‑related and Middle‑East tensions may further depress the dollar’s exchange rate.
The steepest decline in USDJPY since Japan’s interventions in April and May has sparked speculation about possible renewed official action. Markets are debating whether the move resulted from actual intervention or merely speculative unwinding of short positions.
A Reuters report and a speech by Atsushi Mimura sparked the USDJPY sell‑off. The agency reports that the government is shifting to a surprise‑based approach, foregoing the advance warnings used at the end of April. Vice Minister of Finance for International Affairs Atsushi Mimura affirmed that the earlier intervention was justified and noted that the United States does not oppose such measures, instead offering its support.
