USD Flat, Yen Weakens but Remains Well Above Pre-Intervention Lows

The US dollar was little changed on Tuesday (4th), with foreign exchange markets still focused on the yen's movement. Although the yen weakened against the dollar, it remained significantly above the 40-year low reached just before the US and Japan jointly intervened in the currency market last week.

At the close of trading in New York, the US Dollar Index (DXY), which tracks the dollar against six major currencies, was nearly flat at 99.88.

US Treasury Secretary Scott Bessent confirmed earlier this week that the US had joined Japan in buying yen, marking the first joint currency intervention between the two countries since 2011 and the first time the US has directly supported the yen since 1998.

In a CNBC interview on Tuesday, Bessent said the US assisted Japan because continued yen depreciation could destabilize financial markets in Asia.

"Considering trade flows, the size of the Japanese economy, and its importance to global savings markets, maintaining yen stability is very important," he said. "The Japanese government understands this, and we are honored to work with Japan to help stabilize regional markets."

Before the intervention, the yen had fallen to 164 per dollar, a 40-year low. A weaker yen puts pressure on Japan's economy, which is highly dependent on imports. Japan is also the largest foreign holder of US Treasury bonds, making yen exchange rate fluctuations highly significant to global markets.

Russ Mould, Investment Director at AJ Bell, said, "The yen's depreciation over the past decade has been so significant that Washington and Tokyo had to act together to support the currency. However, US involvement may not be entirely altruistic. While Japanese Prime Minister Sanae Takaichi faces debt and inflation issues, US Treasury Secretary Bessent is more concerned about the market impact if Japan sells its massive holdings of US Treasuries."

Wall Street strategists noted that the US's clear willingness to use resources for intervention significantly reduces the perceived "reserve ceiling" constraint that previously limited individual central banks.

To minimize the potential impact of market intervention on financial markets, the US and Japanese finance ministries said they will use the Federal Reserve's Foreign and International Monetary Authorities (FIMA) Repo Facility to provide liquidity in future operations.

Elias Haddad, Head of Market Strategy at Brown Brothers Harriman, said, "Any rebound may be short-lived and could become an opportunity to sell USD/JPY on strength. The joint US-Japan intervention, coupled with officials' clear statement of readiness to act again if necessary, significantly raises the cost of market-versus-official confrontation and places clearer limits on USD/JPY upside potential."

USD/JPY rose 0.4% to 157.76.

Dollar Flat as Markets Focus on Employment Data

After falling sharply last week due to uncertainty over the Fed's rate outlook and the US-Japan yen intervention, the dollar index has largely traded in a range this week.

Markets will continue to monitor US labor market data this week for new clues on the Federal Reserve's future interest rate policy direction.

The US Bureau of Labor Statistics reported on Tuesday that June's JOLTS job openings totaled 7.359 million, below the market expectation of 7.454 million. May's figure was revised down from the initially reported 7.594 million to 7.537 million, while April's job openings had risen to 7.585 million, the highest since May 2024.

Although June's job openings were below expectations, the overall report still indicates a resilient US labor market.

The data supports the Fed's recent shift in policy focus back to inflation control. With the goal of full employment largely achieved, the Fed is now more focused on its inflation mandate.

Meanwhile, Middle East conflict-driven oil price volatility has altered inflation expectations and caused divisions among Fed officials on future monetary policy direction.

The highlight of this week's labor data will be Friday's release of the July non-farm payrolls report.

Among other major currencies, the euro rose 0.2% against the dollar to 1.1531.

The British pound also gained 0.2%, reaching 1.3450 per dollar.

Middle East tensions remain in focus. International oil prices fell for the second consecutive trading day on Tuesday, helping to ease inflationary pressures.

In his CNBC interview, Bessent said he believes the US and Iran are close to an agreement: "We have a chance to reach an agreement today or tomorrow, reopen the Strait of Hormuz, and gradually return this conflict to a more normal state."

Additionally, Qatar said diplomatic efforts to resolve the Iran conflict are ongoing, with current negotiations focusing on de-escalation and reopening the Strait of Hormuz.

According to media reports, Qatar, a key regional mediator between the US and Iran, revealed that a draft text of the agreement has been completed and is being circulated among the parties.

While direct negotiations have not yet been agreed upon, Qatar said the primary goal in the short term remains reaching a preliminary agreement.

Prices as of approximately 5:40 AM Taiwan time on Wednesday (5th):

DXY: 99.8867 (+0.0275%)

EUR/USD: 1.1529 (-0.0260%)

GBP/USD: 1.3446 (-0.0372%)

AUD/USD: 0.7042 (-0.0568%)

USD/CAD: 1.4065 (+0.0284%)

USD/JPY: 157.7500 (+0.0127%)