The U.S. dollar weakened on Wednesday, falling to its lowest level in seven weeks as optimism grew over potential progress toward a peace agreement between Washington and Tehran. At the same time, the Japanese yen fluctuated but remained significantly stronger than the four-decade low reached before last week’s historic currency intervention.
By 13:58 ET (17:58 GMT), the U.S. Dollar Index (DXY), which measures the greenback against a basket of six major currencies, had slipped 0.2% to 99.68, marking its weakest level since June 16.
Yen Holds Near 157 as Traders Await BoJ Meeting Minutes
The Japanese yen continued to attract attention in currency markets. The USD/JPY pair edged lower to 157.69, reflecting modest yen strength against the dollar.
Earlier this week, U.S. Treasury Secretary Scott Bessent confirmed that Washington had joined Japan in purchasing yen, marking the first coordinated intervention between the two countries since 2011. It was also the first direct U.S. effort to support the yen since 1998. Speaking to CNBC on Tuesday, Bessent said the move was aimed at preventing excessive yen weakness from creating broader instability across Asian financial markets.
Bessent emphasized that a stable yen is crucial given Japan’s trade volumes, economic scale, and role in global savings markets. He added that the U.S. was pleased to support Japan’s efforts to strengthen its currency and promote regional financial stability.
Before the recent currency intervention, the Japanese yen had weakened to a four-decade low of 164 against the U.S. dollar. A weaker yen increases costs for Japan’s import-dependent economy. To stabilize the currency, Japanese authorities typically sell U.S. Treasury holdings—Japan remains the largest foreign owner of U.S. government debt—to obtain the funds needed to purchase yen.
Deutsche Bank strategist Jim Reid noted that the bank’s foreign exchange team believes a faster pace of interest-rate increases by the Bank of Japan (BoJ) will be required to support a more durable recovery in the yen.
Minutes from the BoJ’s latest policy meeting, released on Wednesday, indicated that policymakers expect Japan’s economic growth to slow while inflation could accelerate as a result of higher energy prices linked to tensions in the Middle East.
According to Reid, the June meeting minutes showed that several BoJ board members anticipate a meaningful pickup in consumer inflation during the second half of the fiscal year, while two of the eight policymakers argued for a quicker pace of monetary tightening.
Reid also highlighted that Japan’s latest wage figures are likely to reinforce expectations for additional BoJ rate hikes, keeping pressure on policymakers to continue normalizing monetary policy.
Dollar slips as economic data points to a cooling but resilient U.S. economy
The U.S. dollar weakened as investors assessed a fresh batch of economic data that painted a mixed picture of the labor market and broader economic activity.
According to ADP, U.S. private-sector employment increased by 44,000 jobs in July, falling short of expectations for 68,000 and slowing from June’s gain of 95,000. The report reinforced signs of softer labor market momentum following Tuesday’s weaker-than-expected job openings data and comes ahead of Friday’s closely watched nonfarm payrolls release.
Despite recent softness in labor indicators, the overall employment backdrop remains relatively resilient. This has helped support the Federal Reserve’s recent emphasis on containing inflation, even as rising oil-price volatility linked to the ongoing Middle East conflict complicates the inflation outlook and fuels debate among policymakers over the future path of interest rates.
Meanwhile, the Institute for Supply Management (ISM) reported that activity in the U.S. services sector improved slightly in July, with the Services PMI rising to 54.1 from 54.0 in June. Although the reading missed expectations of 54.5, it remained firmly in expansion territory. The report also showed that the prices-paid index accelerated from the previous month and stayed above 70 for the fourth time in the past five months, highlighting persistent inflationary pressures within the services sector.
Bill Adams, Chief U.S. Economist at Fifth Third Commercial Bank, noted that while July job growth appeared softer, broader labor market data still point to solid demand for workers. He highlighted that job openings over the past three months reached their highest levels since January 2025, while both hiring and voluntary quits increased in the latest June data.
Looking ahead, Adams expects the Bureau of Labor Statistics to report a gain of around 90,000 jobs in July. He also forecasts the unemployment rate to remain unchanged at 4.2%, with labor force participation edging up to 61.6% from June’s post-pandemic low of 61.5%.
Optimism grows over a potential Strait of Hormuz agreement
Investor sentiment was supported by growing expectations that a deal to reopen the strategically important Strait of Hormuz could be reached in the near term.
Several U.S. officials, including President Donald Trump, suggested that negotiations were making meaningful progress. Speaking to reporters on Tuesday, Trump indicated that developments could become clearer within the next 48 hours, expressing confidence that both sides were moving closer to an agreement.
Trump also noted that significant progress had been achieved in recent discussions, adding that the parties involved were eager to continue negotiations and would be wise to pursue a resolution.
Meanwhile, Iran’s Foreign Ministry confirmed that talks with Oman regarding the strait were continuing. Spokesperson Esmaeil Baqaei stated that a joint declaration was in its final stages of review and drafting, provided external parties did not interfere with the process. He reiterated Tehran’s position that the disruption to shipping through the waterway resulted from U.S. military actions in the region.
Indian rupee strengthens after RBI leaves rates unchanged
The Indian rupee also gained ground against the U.S. dollar, with USD/INR falling 0.4% to 95.028 after the Reserve Bank of India unanimously decided to keep its benchmark repo rate unchanged at 5.25% and maintained its neutral monetary policy stance.
The central bank cited ongoing global uncertainties and elevated food-price inflation as reasons for its cautious approach. At the same time, the RBI raised its forecast for India’s 2027 economic growth to 6.7%, while noting that lower global crude oil prices were helping ease external economic pressures.
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