Dollar near two-week lows

The U.S. Dollar has steadied near a two-week low, according to Finance, as investors scale back bets on a Federal Reserve rate hike this year. This shift in sentiment is largely attributed to the recent U.S. Payrolls report, which showed job growth slowed sharply in June, easing market expectations of a rate hike from the Fed. The dollar index, which measures the U.S. Currency against six other units, was at 100.9 in early trading.

The euro was at $1.1435, not far from its strongest level in two weeks, while sterling last bought $1.3351. The yen, however, remains pinned near a 40-year low, keeping investors nervous about what Tokyo might do next. It was trading at 161.57 per U.S. Dollar, just off the 1986 low of 162.84 it touched last week. Traders remain nervous about possible intervention after a sudden surge in buying briefly lifted the currency on Thursday, as reported by Aol.

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OCBC strategists, though, maintain that the decline in the unemployment rate points to a still-tight labor market and should help keep Fed tightening expectations intact. They said, "The broader USD outlook remains constructive," and are maintaining their view of a moderate 2-3% appreciation in the dollar in the second half of 2026. This perspective is also shared by Inkl, which notes the dwindling oil prices have helped ease some of the inflationary concerns.

Investor focus this week is 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. 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, as discussed by Mezha.

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. 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.

Marc Chandler, chief market strategist at Bannockburn Global Forex, noted, "The market knows it risks intervention. 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."

The South Korean won has also been affected by the recent market developments, firming slightly on the first day of its historic 24-hour onshore spot dollar-won trading, as reported by Finance. The won was fetching 1,534 per dollar, according to Inkl.

As the market looks ahead to the next Fed meeting and potential intervention from Tokyo, investors remain cautious. The risk of intervention is likely to lead to volatility and temporary corrections, rather than a lasting change in the USD/JPY rate, according to OCBC strategists. The currency market is likely to remain under pressure ahead of the next Fed data and any new signals from Japanese regulators, as reported by Mezha.