The Federal Reserve’s hesitance to implement measures, despite commitments to adhere to the inflation target that has remained unmet for over five years, has exerted downward pressure on the dollar.Then yesterday, it seems that Japanese officials may have intervened in the foreign exchange market, and as was the case earlier this year, the Federal Reserve reported monitoring prices and indicated they were doing so at the request of the US Treasury. If true, it highlights a significant contrast between Japan, which seeks to dominate the market through sheer scale (intervention and the expansion of the BOJ’s balance sheet), and the US, which employs a more nuanced approach. Nonetheless, the Ministry of Finance’s choice to intervene, along with an initial assessment of the Bank of Japan’s balance sheet, indicates that the intervention, which entailed selling nearly $53 billion, was not counterbalanced by the Bank of Japan. This is evident as the Bank not only refrained from increasing interest rates but also revised down its core inflation forecast for this year. Following the significant fluctuations in the foreign exchange market between the FOMC and MOF/BOJ, the currency market is largely restricted to tight ranges, with the exception of the yen, where officials have introduced volatility. Most currency pairs are not experiencing any substantial follow-through action. Oil prices remain robust, yet September WTI is on the verge of ending a three-week rally that has seen a 30% increase.

Chip and AI stocks are experiencing renewed interest, evidenced by significant increases in the markets of Japan, South Korea, and Taiwan today. The Nasdaq appears set to experience an upward gap. The euro maintained its position above the three-month downtrend that was breached following the FOMC meeting on Wednesday. It is currently positioned at approximately $1.1410. As short-term interest rates in the US continued their decline, the euro appreciated to nearly $1.1540. It is consolidating, but within a range of slightly less than one-third of a cent today, remaining below $1.1530. Some of the purchasing activity may have been associated with the 3.6 billion euros in options at $1.1500 that expire today, along with an additional 2.5 billion euros set to expire next Tuesday and Wednesday. The euro settled above the upper Bollinger Band yesterday, located near $1.1505 today. In late Tokyo yesterday, Prime Minister Takaichi confirmed speculation regarding the government’s decision to reduce the sales tax on food and soft drinks to 1%, effective in the upcoming fiscal year around April. It will also assist qualifying families through cash subsidies. She denied that the funding would come from new bonds and instead indicated that she would seek non-tax revenue through a review of special accounts and government funds. The dollar experienced significant selling pressure against the yen. It declined beneath JPY158 for the first time since May 14. The sharpness of the move has led to speculation regarding potential intervention by the BOJ. Similar to January, the Federal Reserve reportedly conducted its usual check on rates, but this time it was noted that the inquiry was made on behalf of the US Treasury, which is an unusual circumstance.

The timing of this event was said to occur late in the North American afternoon. Preliminary assessments derived from alterations in the BOJ’s balance sheet indicate an intervention amounting to approximately JPY8.45 trillion (nearly $53 billion). With the sharp drop, the greenback surpassed the 61.8% retracement of the gains since the last intervention low, found near JPY158.45. The dollar barely held above the 200-day moving average, coming in today slightly below JPY158, which also represents approximately the midpoint of this year’s rally. The greenback has maintained its position above the 200-day moving average since last October. The dollar settled below the lower Bollinger Band, located near JPY160.25 today. The BOJ’s decision to maintain its current stance facilitated a recovery of the dollar to nearly JPY160.90. Market apprehension regarding a potential intervention operation has led it to retreat to approximately JPY158.55 during the European morning, and it is currently oscillating near JPY160. Japanese and US officials have previously expressed concerns regarding volatility, and their actions yesterday resulted in one-month implied volatility rising to nearly 8.5%, marking a three-month high from approximately 6%, which was the lowest level in about four years. Sterling reached slightly above $1.3405 prior to the Bank of England’s 6-3 decision to maintain its current stance. The central bank observed that inflation risks are skewed upward compared to the July Monetary Policy Report. Despite the optics, the Governor of the Bank of England, Bailey, denied that the central bank was approaching a rate hike.

In the context of the widespread dollar sell-off in North America, sterling experienced a modest increase, reaching $1.3475. The upper Bollinger Band is positioned around $1.3520, while the July high, marking a two-month peak, is close to $1.3560. It is currently consolidating within a range of approximately one-third of a cent below $1.3470. The Canadian dollar edged higher yesterday; however, it underperformed, which is frequently observed in a weak US dollar environment. The Canadian dollar’s 0.25% gain was the least among the G10 currencies. The US dollar dipped slightly below CAD1.40 for the first time since mid-June but ultimately closed above that threshold. Below the psychological support at CAD1.40, the CAD1.3980 area corresponds to the 38.2% retracement of the US dollar’s rally from the May 1 low. A break could spur a move toward CAD1.39. The greenback has maintained its position above CAD1.40 today, yet remains below CAD1.4025. After declining to a two-week low near $0.6920 on Wednesday, the Australian dollar rebounded to nearly $0.6990 following the FOMC decision. The gains were extended to nearly $0.7035 amid the broad sell-off of the greenback in the North American morning. It is among the limited currencies that continued yesterday’s rally today, though only slightly. It increased to $0.7045, marking the highest level since June 17. The upper Bollinger Band is positioned just beneath $0.7040 today. The next technical target may be near 0.7055. It has found initial support near 0.7020.