Overview

The dollar firmed on Friday but is on track for a July loss after softer‑than‑expected June PCE inflation data raised doubts about the Federal Reserve’s near‑term rate‑hike plans. The dollar index (DX) rose 0.25% on the day, recovering earlier losses, while the greenback was down about 1% for the month, with most of the decline occurring this week following the Fed’s decision to hold rates steady.

US Dollar and Broad Currency Moves

The US dollar showed mixed pair movements: US‑JPY rose 0.54%, US‑KRW gained 0.63%, and US‑CNY slipped 0.13%. The pound and euro each fell 0.16% in early trade, and the Australian dollar remained flat. Broader currencies traded in a tight range as concerns over the U.S.–Iran conflict dampened appetite for risk‑heavy assets.

Japanese Yen

The yen weakened after the Bank of Japan (BOJ) kept policy rates unchanged, ending an overnight rally that had been attributed to reported government intervention. The USD/JPY pair rose 0.7% to trade above 160 yen, after having fallen to as low as 158 yen (a 3% drop) the previous night. Media reports linked the earlier rally to Tokyo’s intervention aimed at rescuing the yen from its weakest level in 40 years, a move allegedly coordinated with U.S. authorities. U.S. Treasury Secretary Scott Bessent said the yen appeared undervalued. The BOJ reiterated its commitment to further rate hikes this year and warned that underlying inflation is likely to exceed 2% in early 2027, a hawkish signal that analysts at Capital Economics expect to be followed by a 25‑basis‑point hike in October.

South Korean Won

The South Korean won was a notable decliner, with the USD/KRW pair surging 1.1% as it reversed a sharp overnight drop that had been reported as the result of government intervention. The won touched its strongest level in five months on Thursday night.

Chinese Yuan

The Chinese yuan’s USD/CNY pair fell 0.1% after July purchasing managers’ index (PMI) data disappointed, showing contraction in both manufacturing and services activity overall.

Monetary‑Policy Context

Three Fed policymakers called for an interest‑rate hike, while Fed Chair Kevin Warsh reiterated the Fed’s 2% inflation target but offered no clear guidance on how the target would be achieved, deepening market uncertainty about a possible rate increase this year. Core PCE prices remained above the 2% target despite the headline figure being softer than expected.

Market Sentiment

Anxiety over the U.S.–Iran war and the mixed signals from major central banks left traders cautious, limiting support for riskier assets and keeping currency movements within narrow bounds.