Dollar slides as Fed hike bets fade, yen intervention risk looms

June U.S. payrolls rose by only 57,000 and the unemployment rate held at 4.2%, a weak combination that pushed traders to dial back expectations for another Federal Reserve rate hike this year. The dollar slipped close to a two-week low, and in Asian trading the euro stood near $1.1435 while sterling traded around $1.3351, showing that the greenback’s pullback was broad, not confined to the yen.

For ordinary investors and borrowers, that shift matters well beyond the foreign-exchange screen. When markets think the Fed is less likely to tighten again, pressure on Treasury yields can ease, which tends to feed through to mortgage rates and other borrowing costs. A softer dollar also changes the value of retirement portfolios through bond and stock prices, while companies with large overseas sales can see foreign earnings translate into more dollars.

The yen carried a different kind of risk. It hit 162.58 per dollar on June 30, its weakest level since 1986, leaving traders alert to possible intervention from Tokyo if the currency weakened further. Japan’s finance minister, Satsuki Katayama, said the government was ready to take appropriate or decisive action against excessive currency moves, and Japanese officials held talks with U.S. Treasury Secretary Scott Bessent on financial markets.

The Bank of Japan’s stance has kept the pressure on. Its basic loan rate stood at 1.25% and its complementary deposit facility rate at 1.0% in early July, leaving a wide rate gap with the United States that continues to favor the dollar. The BOJ’s next Monetary Policy Meeting was scheduled for July 30-31, giving traders another date to watch even as the dollar headed for its biggest weekly loss in 12 weeks after the weak labor report. Japan has spent about $74 billion on previous yen support efforts, but intervention alone has not been enough to reverse the currency’s slide while the rate differential remains wide.