United States Dollar Index struggles near 100 after suspected Japanese intervention

• The US Dollar Index struggles near six-week lows as suspected Japanese intervention weighs on sentiment.
• Analysts see the Greenback's rally losing momentum after the latest Federal Reserve monetary policy meeting.
• Traders await next week’s ISM PMIs and Nonfarm Payrolls data.

The US Dollar Index (DXY) struggles to hold its early recovery on Friday as the fallout from suspected Japanese intervention and the possibility of direct action by the United States (US) keep the Greenback under pressure.

At the time of writing, the index trades around 99.96, easing from an intraday high of 100.45 and hovering near its lowest level in six weeks. The DXY is also on track to close July in negative territory.

The Greenback suffered a sharp sell-off on Thursday as the Japanese Yen (JPY) surged across the board. Reuters reported, citing a market source, that Japanese authorities likely conducted a large-scale US Dollar-selling, Yen-buying intervention during American trading hours.

Intervention concerns intensified on Friday after Reuters reported that the US Treasury had informed several banks that it may intervene in the Yen market and advised them to “stand ready for future action.”

Meanwhile, the Federal Reserve’s (Fed) shift towards limited forward guidance is also weighing on the US Dollar. Analysts at Brown Brothers Harriman argue that “the USD rally from May has run its course, with DXY poised to retreat back into a 96-100 range.”

They warn that “the tailwind to USD from resilient US economic activity is outweighed by Fed Chair Kevin Warsh's failure to turn tough inflation rhetoric into a credible policy, increasing the risk the Fed falls behind the curve in containing inflation.”

The US central bank left interest rates unchanged at 3.50%-3.75% on Wednesday. Dallas Fed President Lorie Logan, who voted for a rate hike at this week’s meeting, said on Friday, “Without any policy restraint, inflation will likely continue to trend above target until there’s an unanticipated shock.”

On the data front, the final University of Michigan Consumer Sentiment Index rose to 55.2 in July from 54.4, while the Consumer Expectations Index improved to 55.4 from 54. Meanwhile, one-year and five-year consumer inflation expectations were unchanged at 4.2% and 3.3%, respectively.

Looking ahead, next week’s US economic calendar features the July ISM Manufacturing and Services Purchasing Managers Index (PMIs), followed by the Nonfarm Payrolls (NFP) report. The US economy is expected to add 91K jobs in July, up from 57K in June, while the Unemployment Rate is forecast to rise to 4.3% from 4.2%.