Dollar Selloff Accelerates as Fed Concerns and JPY Intervention Take Toll

The dollar's post-FOMC selloff accelerated yesterday, weighed down by concerns that the Federal Reserve may not translate its price stability rhetoric into effective policy tightening. Combined with Fed Chair Kevin Warsh's ambiguity about the reaction function, this continued to weigh on USD.

Core PCE rose only 0.1% month-on-month in June, while Q2 growth undershot expectations at 1.5% quarter-on-quarter annualised. Adding to the pressure was JPY intervention, which triggered a more than 3% decline in USD/JPY and spilled over into broader USD sentiment.

The DXY index briefly dipped below 100.0 and reached its lowest level since 17 June, when Warsh's first Fed meeting sent the greenback higher. Position-squaring likely amplified the move, with our estimate of aggregate USD net speculative positioning versus G9 showing the most stretched net-long USD positioning since January 2025 as of 21 July.

Eurozone CPI data is out today, with consensus expectations at 2.9% for headline and 2.4% for core. We think the sharp shift in USD momentum leaves near-term risks tilted to the upside for EUR/USD, but next week's packed US calendar can provide fresh catalysts.