Dollar Holds Decline on Yen Intervention

The dollar index traded close to 98 on Friday after dropping nearly 1% in the prior session, with losses driven largely by a sharp advance in the yen following suspected intervention by Japanese authorities in currency markets. Reports suggested US officials were informed in advance of the move, consistent with a G7 understanding that major currency interventions are typically communicated among members. On the macroeconomic front, fresh data showed the US economy expanded at an annualized 2% in the first quarter, rebounding from a late 2025 slowdown tied to a government shutdown. Consumer spending increased 1.6%, supported by resilient demand for services, while separate labor data indicated jobless claims falling to multi-decade lows. The releases followed the recent decision by the Federal Reserve to keep interest rates unchanged, though policymakers acknowledged growing internal divisions as economic uncertainty persists stemming from the Middle East conflict.

The dollar index slipped to almost 98 on Thursday, as oil prices pulled back from a four-year high, yen strenghten sharply and fresh data pointed to resilience in the US economy. Figures from the Bureau of Economic Analysis showed GDP grew at an annualized 2% in the first quarter, rebounding from a late 2025 slowdown linked to the government shutdown. Consumer spending rose 1.6%, supported by solid demand for services, while separate data showed jobless claims falling to multi-decade lows. The releases came shortly after the Federal Reserve held interest rates steady but highlighted growing divisions among policymakers amid uncertainty tied to the Middle East conflict. Meanwhile, the yen strengthened as much as 3% as traders speculated Japanese authorities may be intervening, following a strong warning against excessive currency weakness.

The dollar index hovered near 99 on Thursday, sustaining recent gains after the Federal Reserve kept its policy rate unchanged as expected but adopted a more hawkish tone amid growing inflation concerns. Four policymakers also dissented from the decision, arguing the Fed should no longer signal a bias toward easing, underscoring rising internal divisions over the policy outlook as uncertainty increases due to the Iran conflict. Markets have since fully priced out Fed rate cuts for this year, while beginning to assign odds to a possible hike in 2027. Attention now turns to upcoming monetary policy decisions from the European Central Bank and the Bank of England later in the day. The dollar also drew support from elevated geopolitical tensions in the Middle East, after President Donald Trump said the US would maintain its naval blockade on Iran until a nuclear agreement is reached, while Tehran accused Washington of attempting to force Iran into submission through economic pressure.