Dollar Steadies Near Two-Week Lows as Rate Hike Bets Ease, Yen Pressured
Market Movements and Currency Analysis
By Ankur Banerjee
SINGAPORE, July 6 (Reuters) - The U.S. dollar steadied near a two-week low on Monday as investors scaled back bets on a Federal Reserve rate hike this year, while the yen remained pinned near a 40-year low, keeping investors nervous about what Tokyo might do next.
The euro was at $1.1435, not far from its strongest level in two weeks, while sterling last bought $1.3351. The dollar index, which measures the U.S. currency against six other units, was at 100.9 in early trading.
The yen was at 161.57 per U.S. dollar, just off the 1986 low of 162.84 it touched last week, as traders remain nervous about possible intervention after a sudden surge in buying briefly lifted the currency on Thursday.
The South Korean won firmed a touch on the first day of its historic 24-hour onshore spot dollar-won trading. It was fetching 1,534 per dollar.
Dollar on Back Foot
The U.S. dollar clocked its biggest weekly drop last week since April after the U.S. payrolls report showed job growth slowed sharply in June, easing market expectations of a rate hike from the Fed.
Fed Policy Outlook
OCBC strategists though said the decline in the unemployment rate points to a still-tight labour market and should help keep Fed tightening expectations intact.
"The broader USD outlook remains constructive," they said, maintaining their view of a moderate 2-3% appreciation in the dollar in the second half of 2026.
Inflation and Market Focus
The dwindling oil prices have helped ease some of the inflationary concerns, with investor focus this week on the minutes of the Fed's June meeting to help gauge policymakers' thinking around the rates outlook.
Strategists at Commonwealth Bank of Australia said the minutes may be shorter or provide less insight than usual given Fed Chair Kevin Warsh's view the central bank has provided too much guidance in the past.
Yen Vigil in Place
The yen remains firmly in the spotlight, hovering near a 40-year low as the threat of official intervention keeps traders on edge, even though analysts doubt any move by Tokyo would deliver lasting support.
Intervention Risks
Intervention risk is more likely to trigger bouts of volatility and temporary corrections than a lasting reversal in USD/JPY, according to OCBC strategists.
"Without a meaningful shift in underlying macro fundamentals, verbal warnings and outright intervention alone are unlikely to change the broader direction of the pair," they said.
Market Reactions and Speculation
Investors are also concerned about Japanese officials abandoning their habit of telegraphing risks, instead signalling a more targeted campaign to squeeze speculators and raise the cost of betting against the yen.
"The market knows it risks intervention," said Marc Chandler, chief market strategist at Bannockburn Global Forex. "We continue to see signs in the options market that some large pools of capital have bought short-dated dollar puts to protect long dollar positions in the case of intervention."
(Reporting by Ankur Banerjee in Singapore)
