US Blindsides ECB in Historic Currency Intervention

The European Central Bank (ECB) was caught off guard last week when the US used euros, rather than US dollars, to intervene in the foreign exchange market and support the Japanese yen. The move was part of a coordinated effort between the US, Japan, and other countries to stabilize the yen after it hit a 40-year low.

The US Treasury Secretary Scott Bessent spoke with ECB President Christine Lagarde on August 1, after the intervention had already taken place on July 31. Some senior ECB officials viewed the use of euros as an unprecedented breach of longstanding conventions on cooperation between western monetary authorities.

The operation aimed to help Japan support the yen by selling US dollars and buying yen. The US Treasury's decision not to use US dollars may indicate that it wants to avoid interventions leading to a sell-off of US Treasuries and higher US yields.