Analyst: US-Japan Joint Intervention Triggers Continued Dollar Decline, but Future Fundamentals May Remain Positive

August 3, Monday, the US dollar continued its decline as the US and Japan intervened in the forex market to support the yen. However, the recent weakness of the US dollar can be traced back to last week's Federal Reserve meeting. At that time, the Federal Reserve decided to keep interest rates unchanged, raising market doubts about Chairman Powell's ability to combat inflation.

Francesco Pesole, FX strategist at Holland International Group, said, "It all started after the Federal Reserve meeting, where the market previously held a large number of long dollar positions. From a positioning perspective, short-term investors were overwhelmingly bullish on the dollar." Some strategists pointed out that to avoid further pressure on the dollar, the US Treasury Department may use the euro instead of the dollar to fund its yen purchases.

Pesole stated that many traders are considering whether to switch to building long-term short positions on the dollar. However, he believes that Japan's forex intervention is only a temporary measure, and the real determining factor for the dollar's direction will still be the Fed's policy. JPMorgan strategist Mohit Kumar pointed out that if oil prices do not drop significantly and the Fed does not take action to counter inflation, it will weaken Powell's credibility. Furthermore, he said, "In addition to intervention factors, I believe that the fundamentals are still unfavorable to the yen and favorable to the dollar. The pressure on the Fed to raise interest rates will continue to increase." (FXStreet)