Monday brought no letup in the dollar's decline. After Washington and Tokyo jointly intervened to support the yen, the greenback slid further, adding to the pressure that followed the Federal Reserve's decision last week. That action helped the yen climb from its weakest point in 40 years.
Earlier in the day, the Bloomberg Dollar Spot Index slipped to its lowest level in a month, losing 0.5 percent against G-10 currencies. By 11:20 a.m. in London, it had recovered most of that decline and was 0.1 percent lower. The dollar index shed 1.3 percent last week.
Those losses have shifted attention to the Fed's next move. The central bank held rates steady at its July 28-29 meeting, but money markets see almost 70 percent odds of a hike at the next meeting, with a full move priced in by year-end.
The decision fueled concerns about whether Kevin Warsh, the new chairman, would take a firm stance against inflation.
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Data published late Friday showed that bullish dollar bets had reached their highest level since 2014 just before the Fed gathered. ING strategist Francesco Pesole said positioning gauges showed short-term investors had been heavily long dollars.
"It all started after that Fed meeting," Pesole said. "Markets were quite long the dollar. If you look at positioning gauges, short-term investors were aggressively long dollars across the board."
Japan began intervening in currency markets on July 30, and the U.S. Treasury joined the effort. Treasury Secretary Scott Bessent said the United States "will not hesitate" to re-enter the market, signaling that Tokyo has strong backing as it tries to stem excessive yen weakness. To avoid adding downward pressure on the dollar, the Treasury may have bought yen with euros instead of dollars, strategists said.
The euro has fallen against most G-10 currencies since Tokyo started its latest intervention campaign on July 30. Pesole said intervention offers only short-term relief and that "the Fed's policy path will be the main driver of the dollar." He added that many investors are weighing whether to take a sustained short dollar stance. The coordinated intervention underscores how concerned officials on both sides of the Pacific have become about the yen's slide.
The currency's rebound has helped remove some of that pressure, but the Fed's next decision remains the central factor for markets.
That could determine the dollar's trajectory. Mohit Kumar, a strategist at Jefferies, said, "Without a sharp oil-price drop, failure to act on inflation will undermine Warsh's credibility." "Beyond intervention, I see fundamentals as still negative for the yen and positive for dollar," Kumar said. "There would be increasing pressure on the Fed to hike."
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