Analyst: Joint US-Japan Intervention Extends Dollar Decline, but Fundamentals May Remain Positive

Odaily News The dollar extended its decline on Monday, following joint intervention by the US and Japan to support the yen. However, the root cause of the dollar's recent weakness can be traced back to last week's Federal Reserve meeting, when the Fed decided to hold interest rates steady, raising doubts about new Chair Warsh's ability to combat inflation. Francesco Pesole, FX strategist at ING, said: "It all started after the Fed meeting, when the market was holding large long dollar positions. Based on positioning indicators, short-term investors were broadly heavily long the dollar."

Some strategists noted that to avoid further pressuring the dollar, the US Treasury may fund its yen purchases using euros rather than dollars. Pesole said many traders are considering whether to shift to building long-term short positions on the dollar. However, he believes Japan's FX intervention is only a temporary measure, and the Fed's policy will ultimately determine the dollar's direction. Jefferies strategist Mohit Kumar pointed out that if oil prices do not fall significantly, the Fed's inaction on inflation will weaken Warsh's credibility. Additionally, he said: "Apart from the intervention factor, I think fundamentals remain unfavorable for the yen but favorable for the dollar. The pressure on the Fed to raise rates will keep growing."