ING strategists Francesco Pesole, Frantisek Taborsky and Chris Turner note that the Dollar has held post-Fed gains, keeping USD/JPY elevated in intervention territory. They argue this is unlikely to mark a new broad Dollar bull cycle, but see scope for further near-term strength as markets price in more Fed hikes. ING highlights today’s US holiday as a potential window for Japanese FX intervention, with upside risks toward 162–163 if authorities stay sidelined.

Holiday liquidity keeps intervention risk elevated

"The dollar’s momentum remained strong for a full session after Wednesday’s hawkish surprise. Overnight, DXY tested levels above 101.00, on track to have its best week since April 2024. We aren’t at all convinced this is the start of a broader USD appreciation cycle."

"The US-Iran peace deal removes a bullish argument for the dollar, and our macro team still thinks markets are overestimating the chances of a Fed hike. But in the near term, the dollar may enjoy post-Fed enthusiasm for a bit longer, with markets probably keen to fully price two hikes by December at the first strong data print (39bp currently priced in)."

"In the coming days, focus will turn to Fedspeak and how strongly FOMC members are willing to back the hawkish dot plot. With forward guidance removed, markets have more room to reprice aggressively as US data are released, increasing the risk of volatility in both rates and FX."

"Today’s US holiday creates a lower-liquidity backdrop, a window during which Japanese authorities have previously shown a preference to intervene. USD/JPY is already deep into intervention territory after breaking above the 2024 highs yesterday. A lack of intervention today would leave scope for speculators to push towards 162-163 given the supportive USD environment."

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