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Dollar weakens as Japan intervention adds policy-risk to FX

The Dollar Index fell 1.6% over the week to 99.80, even as Fed messaging was viewed as more hawkish and the 10-year Treasury yield neared 4.7%.

Reported · Written up by our desk · Major Pairs

The dollar slid over the week, as FX traders increasingly priced official policy risk after Japan’s estimated $59 billion intervention and reported US-Japan cooperation, according to Action Forex.

The move came despite several macro signals that typically support the currency. The Federal Reserve delivered a more hawkish split than markets expected, US Treasury yields climbed, Brent crude rebounded to end the week above $91, and expectations for a September Fed rate hike rose to about 67%.

Instead, the Dollar Index fell 1.6% over the week to finish at 99.80, its lowest close since mid-June, with the weakness extending beyond USD/JPY as investors reduced broader dollar exposure.

Action Forex said the key issue was the market’s shift in how traders assessed policy risk, which temporarily outweighed the relationships that usually drive dollar trading. It also noted the Fed kept rates unchanged at 3.50% to 3.75%, while a 9-to-3 vote included three dissents favoring an immediate 25 basis point hike.

Latest closeWTI crude $86.80 ▲3.8%|Brent $90.12 ▲1.2%|USD/JPY 157.40 ▼1.7%

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