FX.co ★ US Dollar Index Holds at 7-Week Low

The dollar index fell below 99.8 on Wednesday, its lowest level in seven weeks, extending the sharp decline sparked by last week’s yen intervention and foreign selling of long-term, dollar-denominated fixed-income assets. The recent plunge in the yen and Japanese government bonds (JGBs) prompted the US Treasury and Japan’s Ministry of Finance to step in, jointly purchasing an estimated $88 billion in yen, with part of that operation involving dollar sales. These moves coincided with pressure stemming from the Federal Reserve’s latest decision to keep interest rates on hold. At the post-meeting press conference, Fed Chair Warsh stopped short of clearly endorsing a rate hike as his preferred response to rising inflation, prompting some foreign investors to reduce their exposure to dollar assets. In turn, expectations for a Fed rate increase next month were further tempered by a renewed drop in key energy prices and a weaker-than-expected ADP employment report.