Fed and ECB Signals Fuel Dollar Volatility Ahead of Key Rate Decisions
The US dollar's mixed performance has not deterred USDJPY bulls from testing Japan's resolve. The pair is approaching the psychologically important 160 mark, as asset managers and hedge funds have increased their net short positions in the yen to their highest levels since July 2024.
Japan has spent ¥11.7 trillion on currency interventions, exceeding the market's expectation of ¥10 trillion. Finance Minister Satsuki Katayama warned that the authorities are prepared to intervene again if volatility rises or speculation is detected.
The ECB's move towards a rate hike in June and the US dollar's retreat amid new record highs for stock indices have contributed to the yen's decline. The futures market puts the odds of a Fed rate hike in 2026 at 50-50, suggesting that the FOMC has not ruled out a return to rate cuts, which would weaken the dollar.