MUFG Bank Senior Currency Analyst Lloyd Chan, highlights the current downward pressure on the US Dollar Index (DXY), which has fallen below the 98.00 level. The report notes that the recent decline is largely influenced by the weakening USDJPY and the Bank of Japan's upgraded growth and inflation outlook. The analysis suggests that further deterioration in the DXY could lead to extended USD softness.

US Dollar faces pivotal challenges

"The broad US dollar index (DXY) remains under downward pressure, having slipped below the 98.00 handle. The index now sits at a technically pivotal zone - any further deterioration risks opening the door to an extended phase of USD softness."

"The latest leg lower in DXY has been driven largely by the sharp decline in USDJPY. Although the Bank of Japan kept its policy rate unchanged at 0.75% last Friday, it upgraded both its growth and inflation outlook for FY2026."

"Overall, the balance of risks may point toward USD vulnerability and heightened two way volatility in USDJPY as markets navigate intervention uncertainty and evolving policy expectations around BOJ policy stance and Japan Prime Minister Takaichi’s fiscal policy."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)