- The fall of the USD index could mark the beginning of the end.
- Rumors of monetary interventions sent the USDJPY down.
The US dollar fell to a two-week low amid disappointing labor market numbers. they increased by 57,000 in June and were revised downwards by 74,000 for April and May. The drop in the unemployment rate to 4.2% was due to a reduction in the workforce rather than an acceleration in hiring.
In the context of these figures, the probability of a rate hike in July fell from 30% to 20% in the markets; the probability of an increase in September fell from 64% to 53%; and the probability of an increase by the end of the year fell from 83% to 78%. This put pressure on the dollar. Previously, speculators had increased their net long positions in the US currency to a one-and-a-half year high, making this trade highly concentrated. Profit taking became the catalyst for the rise in .
According to Credit Agricole, the US dollar appears overbought and overvalued. In fact, the Federal Reserve may not be as aggressive as markets believe. Eurizon SLJ Capital maintains that investors have already squeezed everything they can from the rally. The positive sentiment has been fully discounted; Now is the time to reap benefits.
TD Securities argues that as global GDP accelerates and risk premiums narrow, the interest rate differential between the United States and the rest of the world will narrow, leading to a weakening of the dollar in the second half of the year. The stabilization of the international situation after the turbulence caused by tariffs and the conflict in the Middle East could also cause a depreciation of the dollar exchange rate.
Meanwhile, the steepest decline since Japan's monetary interventions in April and May has sparked speculation about whether authorities have resumed such practices. Was there intervention in the foreign exchange market or did speculators' fears lead them to close short positions on their own?
A Reuters report and a speech by Atsushi Mimura triggered the USDJPY sell-off. The news agency claims that the Government has adopted a new tactic: instead of warning of monetary interventions, as it did at the end of April, it will now resort to the element of surprise. The top monetary official, the Deputy Finance Minister for International Affairs, stated that the earlier intervention was justified and that the United States does not oppose such actions, but rather supports them.
He FxPro Analyst team
