United States Dollar Index loses ground on possible Yen intervention

The US Dollar Index gives back its intraday advance after reaching its highest level since August 14.
Suspected intervention lifts the Japanese Yen across the board and weighs on the Greenback.
US private payroll growth slows in August ahead of Friday’s Nonfarm Payrolls report.

Vishal Chaturvedi FXStreet

The US Dollar Index (DXY) trades on the back foot on Wednesday as a sharp rise in the Japanese Yen (JPY) forces the Greenback to reverse its earlier intraday gains. At the time of writing, DXY trades around 99.55, down 0.11% on the day, after reaching 99.86, its highest level since August 14.

The Japanese Yen strengthens across the board, with USD/JPY plunging nearly 1% after flirting with the 160 threshold and last trading around 158.80. The speed of the move raises speculation that Japanese authorities may have intervened in the foreign exchange market or conducted a rate check. However, there is no official confirmation of either action. The US and Japan last carried out coordinated intervention in late July after USD/JPY climbed to a 40-year high near 164.

The move spills over into the broader foreign exchange market, with EUR/USD and GBP/USD bouncing off their intraday lows. Weaker-than-expected US labour market data also adds to the downside pressure on the Greenback. The ADP Employment Change showed that private-sector payrolls increased by 38K in August, below the 47K forecast and July’s 46K increase.

Additional US Dollar losses could remain limited as hawkish Federal Reserve (Fed) expectations and escalating hostilities in the Middle East support underlying demand. According to the CME FedWatch tool, markets price in around a 70% probability of a rate hike at the September 15-16 meeting, up from 36% a week ago, following Fed Chair Kevin Warsh’s tougher stance on inflation at the Jackson Hole Symposium.

US Treasury yields also stay elevated across the curve. The benchmark 10-year yield trades around 4.79% after touching 4.81%, its highest level since October 2023.

Analysts at MUFG/BTMU caution that “a Fed hike this month would pose upside risks to our forecasts for the US Dollar,” particularly “if it marks the start of a tightening cycle.” They note that the usual support channels “from higher yields and higher energy prices has not yet fully fed through to the US Dollar,” which in their view “has been held back by the pricing in of a higher US policy risk premium.”

Looking ahead, traders await Friday’s Nonfarm Payrolls (NFP) report for fresh clues about the US labour market and the Fed’s monetary policy outlook.

Economic Indicator

Nonfarm Payrolls

The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months' reviews and the Unemployment Rate are as relevant as the headline figure. The market's reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.

Why it matters to traders?

America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.

Author

Vishal Chaturvedi

FXStreet

I am a macro-focused research analyst with over four years of experience covering forex and commodities market. I enjoy breaking down complex economic trends and turning them into clear, actionable insights that help traders stay ahead of the curve.

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