Forex & Currency Watch — 2026-08-02

Market Snapshot

*Estimated from ECB reference rates (21 July 2026: 7.7255)

Top Movers

USD/JPY: -1.23% (157.58) – The pair collapsed on suspected Japanese intervention after the Bank of Japan held rates unchanged Thursday, with authorities or US Treasury reportedly buying yen to defend the currency from sustained weakness.

EUR/JPY: -1.22% (181.67) – Euro-yen fell sharply in tandem with broad yen strength, signaling carry-trade unwind pressure across multiple currency pairs.

GBP/JPY: -1.11% (212.45) – Sterling-yen retreated as the yen rally accelerated, though GBP/USD itself rose +0.12%, showing yen weakness drove most of the cross-pair move.

What Moved the Tape

• Suspected yen intervention by Japan/US Treasury: USD/JPY crashed nearly 6 yen, or ~3%, after credible reports that Japanese authorities and potentially the US Treasury intervened to support the yen. The move came after the BOJ held rates at the July 31 decision, signaling a patient stance despite inflation concerns. This was the largest single-day yen rally in months and forced rapid liquidation of crowded yen-short positioning.

• Fed hold and dovish pivot concerns: The Federal Reserve maintained rates on 31 July, but market pricing suggests limited appetite for additional hikes. The soft Q2 GDP print (below consensus) reinforced expectations that rate cuts may begin in Q4 2026 rather than remain on hold. Dollar weakness across the board—including a four-week low for the DXY near 100—reflected this repricing.

• Risk-on sentiment revival in equities: US chipmakers and semiconductor stocks surged after Thursday's rout, lifting broader equity indices and denting safe-haven demand for the dollar. This rotated flows into emerging-market currencies and commodity-linked pairs (AUD, CAD, NZD), even as JPY gained on intervention flows alone.

Central Bank Watch

Federal Reserve (31 July 2026): Held funds rate unchanged; no new guidance on future hikes. Market pricing now implies rate cuts are more likely by late Q4 2026 than further tightening, undermining dollar bull positioning. Fed officials offered limited pushback on soft inflation data, reinforcing the "patient" messaging.

Bank of Japan (31 July 2026): Maintained policy rate unchanged and offered no new measures to support or defend the yen directly—but the intervention that followed hours later suggests unofficial coordination with the US Treasury. The BOJ's inaction contrasts with the urgency of FX authorities to halt the yen's eight-week slide.

European Central Bank: No new meeting, but recent hold signals align with the Fed's pause. Market focus shifts to August macro data (Eurozone PMI, jobs reports) that will shape September decision expectations. EUR/USD remains pinned near 1.15 as both central banks adopt wait-and-see stances.

Emerging Markets & Asia FX

USD/CNY: Chinese yuan held steady near 7.73 (per ECB reference) as PBoC liquidity operations balanced offshore demand. No new guidance; authorities remain data-dependent ahead of August manufacturing PMI.

JPY (all crosses): Japanese yen surged across the board (vs. USD, EUR, GBP, AUD, NZD) on suspected official intervention after weeks of weakness driven by carry-trade unwinding and Fed-BOJ divergence trades. The 3% single-day jump marks a potential turning point; watch for follow-up intervention if USD/JPY re-tests 160.

KRW / INR / MXN: Limited fresh data after 31 July; no major central bank action reported. These remain sensitive to Fed rate-path expectations, with potential weakness if US cuts begin sooner than consensus.

Strategist Takes

Citi FX Strategy (Dan Tobon, Q1 2026 outlook): "We are dollar bulls in a world of dollar bears right now." Tobon anticipated dollar strength vs. EUR, GBP, and CAD through Q3 2026, but the Fed hold and soft GDP print have likely shifted this view. Watch for a Citi downgrade on US rate expectations if August PCE and jobs data miss consensus.

FX Daily Report (Technical team, 31 July): The USD Index closed near the critical 100.00 psychological support level. "While the index managed to stage a minor recovery, any failure to sustain above 100.50 could pave the way for further deterioration toward 99.50–99.00 support zones." This confirms dollar sellers maintain control.

What to Watch Next

• US PCE Inflation (early August, all-items and core): Expected to confirm or refute the "soft" inflation narrative. A miss lower would accelerate bets on Q4 rate cuts; a beat could stabilize the dollar near 100.50–101.00. Most sensitive pair: USD/EUR, USD/JPY.

• US Nonfarm Payrolls & Jobless Claims (first Friday of August): A weak labor report would reinforce the case for Fed pivot and pressure the dollar further. Strong payrolls could spark a technical bounce. Most sensitive pair: USD/CAD, USD/CNY.

• Eurozone July PMI (preliminary, early August): Will signal whether the eurozone manufacturing outlook remains weak. A surprise beat could lift EUR/USD above 1.16; a miss keeps it rangebound. Most sensitive pair: EUR/USD, EUR/JPY.

• China August PMI & Trade Balance (mid-August): Will assess whether PBoC liquidity support is translating into real demand. Weak data could trigger CNY weakness if risk sentiment turns. Most sensitive pair: USD/CNY, AUD/USD.

Reader Action Items

1. Watch the DXY near 100.00. Break below this level confirms a deeper dollar downtrend; a hold signals consolidation. Position accordingly for August data risk.

2. JPY intervention setup now complete. USD/JPY could stabilize 155–160 if Japanese authorities intervene on rallies. Consider using intraday bounce opportunities to short USD/JPY on any spike above 159.50.

3. Monitor Fed rate-cut expectations. If August PCE or jobs data miss, market odds of a September or October rate cut will spike—repricing USD down another 1–2% across the board and lifting EUR, GBP, and AUD.

Sources:
[]
[https://fxstreet.com/news/forex-today-japanese-yen-retreats-after-rallying-on-suspected-intervention-boj-holds-steady-202607310806]
[https://babypips.com/analysis/financial-forex-market-recap-july-27-31-2026]
[https://fxdailyreport.com/forex-technical-major-pairs-analysis-july-31-2026]
[https://fxpremiere.com/forex-forecast-trading-signals-31-july-2026]
[https://riotimesonline.com/global-economy-briefing-july-31-2026]
[]