The U.S. dollar stabilised close to a two-week low on Monday as investors reduced their expectations for a Federal Reserve rate increase this year, while the yen remained close to a 40-year low, leaving investors apprehensive about potential actions from Tokyo. The euro was at $1.1435, not far from its strongest level in two weeks, while sterling last bought $1.3351. The dollar index, which measures the U.S. currency against six other units, was at 100.9 in early trading. The yen was at 161.57 per U.S. dollar, slightly above the 1986 low of 162.84 it reached last week, as traders express apprehension regarding potential intervention following a sudden increase in buying that briefly strengthened the currency on Thursday. The South Korean won appreciated slightly on the inaugural day of its unprecedented 24-hour onshore spot dollar-won trading. It was fetching 1,534 per dollar.

The U.S. dollar experienced its most significant weekly decline last week since April, following the release of the U.S. payrolls report, which indicated a marked slowdown in job growth for June. This development has tempered market expectations regarding a potential rate hike from the Federal Reserve. Strategists noted that the decrease in the unemployment rate indicates a persistently tight labour market, which should contribute to maintaining expectations for Federal Reserve tightening. “The broader USD outlook remains constructive,” they said, maintaining their view of a moderate ​2-3% appreciation in the dollar in the second half of 2026. The declining oil prices have contributed to alleviating certain inflationary worries, with investor attention this week directed towards the minutes of the Fed’s June meeting to better understand policymakers’ perspectives on the future of interest rates.

Strategists indicated that the minutes may be more concise or offer less insight than typically expected, reflecting Fed Chair Kevin Warsh’s perspective that the central bank has previously offered excessive guidance. The yen remains firmly in the spotlight, hovering near a 40-year low as the threat of official intervention keeps traders on edge, even though analysts doubt any move by Tokyo would deliver lasting support. According to strategists, the risk of intervention is more likely to incite episodes of volatility and temporary corrections rather than lead to a sustained reversal in USD/JPY. “Without a meaningful shift ​in underlying macro ⁠fundamentals, verbal warnings and outright intervention alone are unlikely to change the broader direction of the pair,” they said.

Investors are expressing apprehension regarding the potential shift by Japanese officials away from their traditional practice of signalling risks. Instead, there appears to be a move towards a more focused strategy aimed at pressuring speculators and increasing the costs associated with shorting the yen. “The market knows it risks intervention,” ​said Marc Chandler. “We continue to see signs in the options market that some large pools of capital ​have bought short-dated dollar puts to protect long dollar positions in the case of intervention.”