USD Falls to Seven-Week Low Amid Hopes for Strait of Hormuz Deal; Yen Stabilizes Around 157

The U.S. dollar declined on Wednesday (5th), reaching a seven-week low, as markets anticipated progress toward a peace agreement between Washington and Tehran. Meanwhile, the Japanese yen remained volatile but stayed well above the 40-year low reached before last week’s U.S.-Japan joint currency intervention.

In late New York trading, the U.S. Dollar Index (DXY), which tracks the dollar against six major currencies, fell 0.2% to 99.68, its lowest level since June 16.

Foreign exchange markets remained focused on the yen. The yen strengthened slightly against the dollar, with USD/JPY trading at 157.69, down marginally.

U.S. Treasury Secretary Scott Bessent confirmed earlier this week that the U.S. had jointly intervened in the currency market with Japan to buy yen. This marks the first joint intervention since 2011 and the first time since 1998 that the U.S. has directly stepped in to support the yen.

Bessent said in a Tuesday interview with CNBC that the U.S. participated in the intervention because continued yen weakness could destabilize Asian financial markets.

Jim Reid, a strategist at Deutsche Bank, stated, "Our foreign exchange strategy team believes the Bank of Japan (BoJ) must accelerate its rate hikes to achieve a more sustainable rebound in the yen."

The Bank of Japan released minutes from its latest interest rate meeting on Wednesday, showing that policymakers expect oil price shocks from Middle East tensions to slow Japan’s economic growth while pushing inflation higher.

Reid noted, "The June BoJ meeting minutes revealed that several members anticipate a clear acceleration in consumer inflation in the second half of the current fiscal year, with two out of eight members advocating for faster rate hikes. Recent wage data from Japan may further increase pressure on the central bank to raise rates."

Weak U.S. economic data also drew market attention. According to ADP, U.S. private-sector employment rose by 44,000 in July, below the expected 68,000 and down from June’s 95,000 increase.

This data continues the cooling trend seen in Tuesday’s June job openings report and provides context for Friday’s upcoming July non-farm payrolls report.

Despite the weaker labor market data, the overall job market remains resilient, supporting the Federal Reserve’s (Fed) recent focus on controlling inflation.

Oil price volatility due to Middle East tensions has disrupted inflation trends, leading to divergent views among Fed officials on future monetary policy.

Additionally, the U.S. Institute for Supply Management (ISM) reported that the July services PMI rose to 54.1 from June’s 54.0, slightly below the expected 54.5. The index measuring price changes for raw materials and inputs paid by service firms rose further in July and has exceeded 70 in four of the past five months, indicating persistent cost pressures.

On the Middle East front, several U.S. officials, including President Trump, indicated that a key agreement to reopen the Strait of Hormuz is nearing completion.

Trump told media on Tuesday evening, "Things are going very well. I think we’ll know the outcome within 48 hours."

He added, "We’ve made significant progress. They called me and said, ‘Please, let’s talk.’ They want to start a dialogue. Interestingly, they never mentioned this before… I think reaching a deal would be very wise for them. We’ll see."

Iran’s Foreign Ministry stated that Tehran and Oman continue negotiations on the Strait of Hormuz issue. Spokesperson Esmaeil Baqaei said that the joint statement is in the final review and drafting stage, provided that "certain third parties" do not obstruct the process.

As of approximately 6:00 a.m. Taiwan time on Thursday (6th), exchange rates were:

Dollar Index: 99.6946 (+0.0044%) EUR/USD: 1.1551 (-0.0087%) GBP/USD: 1.3463 (-0.0297%) AUD/USD: 0.7052 (-0.0709%) USD/CAD: 1.4009 (-0.0143%) USD/JPY: 157.6800 (-0.0507%)