NEW YORK (Realist English). The US dollar continues its rapid decline, hitting its lowest level since 15 June on 3 August.
The Dollar Index (DXY) dropped to 99.42 – a seven‑week low. USD/JPY collapsed to 155.20 yen per dollar, the lowest level since the beginning of May.
The plunge is driven by three factors: a split within the Federal Reserve leadership, joint US‑Japan currency interventions, and easing geopolitical risks in the Middle East.
Fed: rate‑hold decision triggers sell‑off
The key blow to the dollar came from the Fed’s 28–29 July meeting. The central bank held its benchmark rate at 3.50–3.75% for the fifth consecutive time. However, the decision was not unanimous: three FOMC members – Lorie Logan (Dallas), Beth Hammack (Cleveland) and Neel Kashkari (Minneapolis) – voted for an immediate quarter‑point hike.
This split has raised doubts about new Fed Chairman Kevin Warsh’s ability to fight inflation. ING analysts stressed: “It all started after the Fed meeting. Markets were very long on the dollar. Looking at positioning indicators, short‑term investors were aggressively long on the dollar across all fronts.” Bullish dollar bets hit their highest since 2014 just before the Fed meeting.
As Jefferies notes, without a sharp drop in oil prices, inaction on inflation will undermine confidence in Warsh. Money markets are already pricing in nearly 70% probability of a rate hike at the September meeting.
US and Japan conduct first joint intervention in 15 years
On 30 July, USD/JPY fell 1.3% – traders interpreted this as a signal of currency intervention. Later, Japan’s Finance Ministry confirmed: Tokyo had resorted to joint intervention with the US for the first time in 15 years to support its currency. The intervention volume on the first day is estimated at $54 billion.
US President Donald Trump said Washington joined the intervention “as a sign of friendship with Tokyo.” US Treasury Secretary Scott Bessent warned that the US “will not hesitate” to step in again if necessary.
On 3 August, USD/JPY initially rose at the start of trading but quickly reversed to sharp losses. Experts believe Japan conducted further interventions. Macquarie Group analyst Gareth Berry noted: “The yen’s price action itself points to intervention.”
Geopolitics and oil: risk reduction weighs on the dollar
A third factor pressuring the greenback was declining geopolitical tensions. Donald Trump called off planned strikes on Iran and announced the start of talks with Tehran. This drove oil prices down, which in turn lowered inflation expectations and reduced demand for the dollar as a safe‑haven asset.
Additionally, easing Middle East tensions weakened demand for the dollar as a “safe haven.” The dollar is also losing ground amid broader stock market optimism.
Expert views: temporary effect or structural reversal?
ING strategists warn that yen interventions are a temporary fix. The dollar’s long‑term trajectory will be determined by the Fed. “Beyond interventions, I see fundamentals as negative for the yen and positive for the dollar. Pressure on the Fed to raise rates will grow,” said Jefferies strategist Mohit Kumar.
However, Goldman Sachs analysts note that interventions remain “an effective tool for Tokyo to buy time until fundamentals start to favour a stronger yen.”
Some traders are already considering a structural short position on the dollar. Against this backdrop, the DXY index was trading near 99.80 on Monday.
The key event for the dollar remains the September Fed meeting. If the central bank opts for a rate hike, the dollar could gain support. However, the rate‑hold decision combined with three dissenting votes has already undermined confidence in the new Fed leadership. As Investing.com notes, hawkish rhetoric from individual FOMC members “only helped the greenback temporarily.”
In the short term, the dollar will remain under pressure from joint US‑Japan interventions and geopolitical détente in the Middle East. Further dynamics will depend on whether Kevin Warsh can convince markets of his resolve to fight inflation – or whether the Fed will be forced to act under mounting pressure.
