Dollar Under Pressure from BoJ Tightening and Waller's Hold Preference

The US dollar has been under pressure from two separate forces this week: a stronger yen due to faster Bank of Japan (BoJ) tightening and comments from Federal Reserve Governor Christopher Waller suggesting he might hold interest rates steady in September.

The combination of these factors has caused the dollar index to decline, with the USD/JPY pair falling from 160.38 to around 155.28. This yen repricing is a result of expectations that the BoJ may abandon its slow tightening cadence and raise interest rates more aggressively.

Governor Waller's comments added to the dollar's woes, as he expressed his preference for holding interest rates steady in September if disinflation continues. However, he noted that this decision is conditional on inflation data, which has been improving, but could still accelerate.

The gold price has benefited indirectly from these developments, rebounding sharply after defending a key technical support zone around $4,320. With the dollar under pressure and gold's recent decline having completed as a correction, further upside for the metal is favored, particularly if the dollar index breaks below 98.55.

The first major test of both sources of dollar weakness will come on Friday with the release of the August employment report (NFP). A weak NFP could reinforce the Fed's side of the dollar decline by reducing pressure for a September hike and likely pulling Treasury yields lower, while a strong report would work in the opposite direction.