Dollar hovers at two-week low as rate-hike forecasts fade, emphasis on beleaguered yen

The U.S. dollar held near a two-week low on Monday as investors trimmed bets for a Federal Reserve rate hike this year, while the yen stayed locked near a 40-year low, putting investors on edge over what Tokyo would do next.

The euro bought $1.1435, close to its best level in two weeks, and the pound bought $1.3351 in latest trading. The dollar index, which measures the U.S. currency against six others, was at 100.9 early in the trading day.

The yen stood at 161.57 to the dollar, not far from a 1986 low of 162.84 set last week, with traders still concerned of probable intervention after a surprising burst of purchasing momentarily raised the currency on Thursday.

The South Korean won edged higher on the first day of its historic 24-hour onshore spot dollar-won trading. It sold for 1,534 to the dollar.

DOLLAR ON THE DEFENSIVE

The U.S. dollar suffered its largest weekly loss last week since April after the U.S. payrolls report indicated that job growth slowed abruptly in June, lowering market expectations of a rate hike from the Fed.

Still, the fall in the unemployment rate indicates a healthy labour market and should assist preserve Fed tightening expectations, OCBC strategists said.“The broader USD outlook remains constructive,” they wrote, confirming their call for a modest ​2-3% rise in the dollar in the second half of 2026.

Falling oil prices have helped soothe some inflationary concerns, and investors this week will focus on the minutes of the Fed’s June meeting to help evaluate policymakers’ thinking regarding the rates forecast.

Strategists at Commonwealth Bank of Australia said the minutes might be shorter or less insightful than normal because Fed Chairman Kevin Warsh believes the central bank has offered too much direction in the past.

YEN VIGIL ON

The yen remained in the spotlight, hovering near a 40-year low as the threat of official intervention kept traders on edge, but analysts doubted any move by Tokyo would provide durable assistance.

OCBC strategists said the danger of intervention is more likely to create bouts of volatility and transitory ​corrections rather than a durable reversal in USD/JPY.”Without a meaningful change ​in underlying macro ​fundamentals, verbal warnings and outright intervention alone are unlikely to change the broader direction of the pair,” they concluded. The Japanese policymakers have also broken their tradition of telegraphing risks, suggesting a more targeted drive to squeeze speculators and boost the cost of betting against the yen, which investors are also worried about.Marc Chandler, chief market strategist at Bannockburn Global Forex, said, “The market understands about the risk of intervention. “We’re still seeing indications in the options market that some sizable pools of capital have bought short-dated dollar puts to hedge long dollar positions in the event of intervention,” he said.