Dollar Skids continued its downward trajectory in European trade on Wednesday, hitting four-month lows. This marks the second consecutive day of sharp losses, influenced by a new round of intervention by the Bank of Japan (BOJ) to support the yen and declining US 10-year treasury yields, which reflect the market’s anticipation of upcoming Federal Reserve rate cuts.
The Index
The dollar index, which measures the greenback against a basket of six major currencies, fell by 0.55% today to 103.66, the lowest level since March 21. During the session, it reached a high of 104.29 before succumbing to downward pressure. On Tuesday, the index had already slipped by 0.1% as US treasury yields continued to fall.
BOJ Intervention
The recent downturn in the dollar is partly due to renewed intervention by the Bank of Japan. Reports indicate another round of yen purchases by the BOJ to stabilize the yen in the foreign exchange market. Data from the latest daily operations show the BOJ spent 2.14 trillion yen ($13.5 billion) on yen purchases last Friday. This follows an earlier intervention three months ago, which saw an estimated 21.18 trillion yen spent to support the yen.
US Yields
US 10-year treasury yields dropped by 0.2% on Wednesday, marking the second consecutive day of declines. Yields fell to four-month lows of 4.156%, enhancing the appeal of non-yielding assets like gold and contributing to the dollar’s weakness.
Powell’s Remarks
Fed Chair Jerome Powell’s recent comments in Washington have also played a role in shaping market expectations. Powell indicated that recent consumer price data strengthens the belief that inflation is returning to the 2% target sustainably, with three consecutive favorable readings. Following these remarks, the likelihood of a 0.25% rate cut by the Federal Reserve in September has surged to 100%, with an equal probability of another cut in November.
Conclusion
The US dollar’s slide to four-month lows underscores the combined impact of international monetary interventions and domestic economic expectations. As the Bank of Japan takes measures to support the yen and US treasury yields continue to decline, the dollar faces significant downward pressure. Investors are now keenly watching for further signals from Federal Reserve officials regarding future monetary policy moves.
FAQs
Why is the US dollar hitting four-month lows? The Dollar Skids is hitting four-month lows due to renewed intervention by the Bank of Japan to support the yen and falling US 10-year treasury yields, which reflect market expectations of upcoming Federal Reserve rate cuts.
How does BOJ intervention affect the US dollar? BOJ intervention
such as purchasing yen to stabilize its value, can lead to a weaker US dollar as investors move funds out of the dollar into the yen
seeking stability.
What did Fed Chair Jerome Powell say about inflation? Fed Chair Jerome Powell stated that recent consumer price data suggests inflation is returning to the 2% target sustainably, with three consecutive favorable readings bolstering confidence.
What are the implications of falling US treasury yields? Falling US treasury yields reduce the attractiveness of holding dollar-denominated assets
leading investors to seek higher returns elsewhere, which can weaken the Dollar Skids.
What are the odds of a Federal Reserve rate cut? According to the Fedwatch tool
there is a 100% likelihood of a 0.25% rate cut by the Federal Reserve in September
with a similar probability of another rate cut in November.