USD extended losses on Monday after coordinated US-Japan FX intervention that
supported the yen. Traders trace the dollar’s weakness to last week’s Fed
decision to hold rates, which has raised questions about new chair Walsh’s
ability to fight inflation. ING FX strategist Francesco Pesole said the move
began after the Fed meeting and that short-term investors had built large USD
long positions. Some strategists say the US Treasury may fund yen purchases with
euros rather than dollars to limit further dollar weakness. Pesole added many
traders are weighing longer-term USD shorts but called Japanese intervention
temporary and said Fed policy will ultimately determine the dollar’s path.
Jefferies strategist Mohit Kumar said if oil does not fall sharply, a Fed
failure to act on inflation would damage Walsh’s credibility, and that aside
from intervention fundamentals remain unfavorable for the yen and supportive of
the dollar, with rising pressure for Fed hikes.
