Dollar Finds a Floor as Policy Pushback Emerges | USD/JPY and EUR/USD Outlook

The US dollar has found temporary footing after an aggressive selloff, not due to renewed confidence, but because policymakers began pushing back against excessive currency moves. Dovish signals from ECB officials and mixed messaging from Washington triggered sharp but short-lived reversals in EUR/USD and USD/JPY. With Japan increasingly isolated in defending the yen and the ECB growing uneasy with euro strength, the next phase will hinge on whether policymakers move beyond words to action.

ECB Pushes Back on Euro Strength

Euro strength has quickly drawn attention from European policymakers. After EUR/USD pushed above the 1.20 handle, ECB officials signalled growing concern about the currency’s impact on inflation.

Governing Council member François Villeroy de Galhau noted that euro appreciation is being closely monitored due to its potential to weigh on already-soft inflation pressures. Austria’s central bank governor Martin Kocher reinforced the message, suggesting that sustained euro strength could eventually require a policy response if it materially alters the inflation outlook.

While the ECB maintains that it does not target exchange rates, the messaging is clear. Further euro appreciation risks undermining inflation forecasts and could reintroduce an easing bias. This emerging resistance from policymakers is likely to cap upside momentum unless supported by stronger fundamental shifts.

US Rules Out Yen Support, Japan Stands Alone

In contrast, US Treasury Secretary Scott Bessent ruled out any US intervention to support the yen, reaffirming Washington’s commitment to a strong-dollar policy. These remarks contradicted earlier comments from President Trump welcoming dollar weakness, reinforcing the administration’s inconsistent messaging.

The implication is that recent rate checks in USD/JPY were likely conducted on behalf of Japan alone, not as part of coordinated action. History suggests unilateral intervention carries less credibility unless backed by decisive follow-through, increasing the risk that markets continue to test Japanese authorities.

This dynamic briefly relieved pressure on the dollar, aided by stretched positioning and a slightly firmer FOMC statement. However, the rebound faded quickly as Chair Powell avoided delivering any meaningful hawkish signal.

Yen Intervention Risk Back in Focus

Japan’s credibility is now under scrutiny. Repeated verbal warnings and rate checks without direct action risk emboldening speculative pressure on the yen. If USD/JPY resumes its climb, the probability of actual intervention via reserve sales rises materially.

Despite supportive carry dynamics still favouring yen weakness, positioning remains crowded. Any shift in US data that strengthens expectations for rate cuts could trigger a rapid unwind, increasing volatility across yen crosses.

Technical Outlook: USD/JPY

USD/JPY has stabilised after a sharp flush lower, with repeated failures to break below the 152.00 area. This zone, extending toward 151.00, aligns with longer-term trend support and remains key on the downside.

On the upside, 154.45 continues to cap rallies. A sustained break above this level would open scope toward 156.00, though intervention risk increases as price moves higher.

Momentum indicators such as RSI and MACD remain cautious, favouring selling into strength rather than chasing upside. Given the macro backdrop, risk management is critical, particularly for long exposure.

USD/JPY Weekly Chart

Technical Outlook: EUR/USD

EUR/USD stalled near 1.2080 before unwinding toward 1.1900, which now serves as near-term support. A break below would bring 1.1800 and the 1.1750 region into focus.

While momentum indicators remain broadly constructive, signs of fatigue are emerging. From a macro perspective, sustained euro strength is likely to face increasing resistance from ECB officials, limiting upside follow-through unless inflation dynamics shift meaningfully.

EUR/USD Daily Chart

Bottom Line

The dollar’s rebound reflects positioning relief and policy pushback rather than renewed conviction. Euro strength is already testing ECB tolerance, while Japan’s solo defence of the yen raises the risk of eventual intervention. With FX markets increasingly headline-driven, volatility is likely to persist. Until policymakers move from rhetoric to action, rallies and pullbacks should be treated cautiously, with risk control taking priority.