FX.co ★ US Dollar Holds Rebound

The dollar index hovered around 99.8 on Tuesday, extending its rebound from Friday’s two-month low of 99.5 amid renewed pressure on the yen, while markets continued to reassess the Federal Reserve’s policy outlook. Speculative short positions in the Japanese currency increased after the US Treasury concluded its joint foreign-exchange intervention with Tokyo. Treasury Secretary Bessent had been purchasing yen with euros via the Exchange Stabilization Fund to reduce the need for Japan to sell additional US Treasuries in defense of its currency. However, mounting fiscal strains in Japan and a sharp rise in long-term US yields helped the dollar regain ground against the yen.

At the same time, Cleveland Fed President Hammack reiterated her view that an additional rate hike is warranted to curb inflation, ahead of tomorrow’s CPI release. The data are expected to show that core inflation has slowed for a second consecutive month. Even so, persistently high wholesale energy prices continue to undermine the case for a prolonged pause in Fed policy tightening.