Dollar Stabilizes as Fed Signals Pause and Japan Warns Against Yen Weakness

The US dollar steadied on Tuesday after a volatile session triggered by signals from the Federal Reserve and verbal intervention from Japan's Ministry of Finance (MoF), as traders weighed the implications for interest rates and currency intervention.

The greenback had been under pressure following the Fed's latest policy communication, which hinted at a potential pause in its tightening cycle. This reduced the dollar's yield advantage, making it less attractive to investors seeking higher returns.

Japan's MoF issued fresh warnings against excessive yen weakness, stoking speculation that Tokyo may intervene in the foreign exchange market for the first time since 2022. These combined forces led to a sharp sell-off in the dollar, particularly against the yen, before the currency found its footing in Asian and European trading hours.

The dollar index (DXY) was trading within a narrow range as of the latest session, reflecting a market in wait-and-see mode. The yen strengthened to around 148 per dollar, recovering from recent multi-month lows.