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The U.S. dollar fell sharply on Monday while the Japanese yen surged, as markets speculated that U.S. and Japanese authorities may be coordinating to support the beleaguered yen ahead of this week’s Federal Reserve meeting.
By early European trading, the Dollar Index slipped 0.4% to 96.975, its weakest level since mid-September. The bulk of the greenback’s losses came against the yen, following reports that the New York Federal Reserve conducted rate checks on the dollar/yen pair late last week — a move often seen as a precursor to potential market action.
USD/JPY plunged 1.7% on Friday and extended losses on Monday, falling another 1.1% to 154.02. The move lifted the yen to its strongest level since late November and triggered widespread short covering after weeks of heavy bearish positioning.
Market attention now turns to the Federal Reserve’s two-day policy meeting, which concludes Wednesday. While rates are expected to remain unchanged, investors will closely scrutinize Chair Jerome Powell’s guidance for clues on the timing and pace of potential rate cuts later this year.
In Europe, the euro benefited from dollar outflows, with EUR/USD rising 0.2% to 1.1853 despite Germany’s Ifo business climate index holding steady at 87.6, slightly below expectations. Sterling edged 0.1% higher to 1.3663.
The Swiss franc also strengthened, with USD/CHF sliding 0.4% to 0.7773. Analysts warned that a sustained break below 0.7800 could reignite concerns in Zurich, potentially reviving market pricing for negative rates as the Swiss National Bank confronts an increasingly strong currency.
In Asia, the yen’s rally marked a sharp reversal from recent weakness, which had intensified after Prime Minister Sanae Takaichi’s election fueled expectations of aggressive fiscal spending and continued easy monetary policy. Japanese officials have repeatedly warned against excessive currency moves, while U.S. signals of close coordination have heightened expectations of joint action.
Elsewhere, USD/CNY dipped 0.1% to 6.9571, while AUD/USD and NZD/USD both rose 0.2%, reflecting the broader retreat in the U.S. dollar.
