Dollar near two-week lows as rate-hike bets recede, embattled yen in focus

The U.S. dollar held near a two-week low on Monday as traders dialed back expectations for a Federal Reserve rate hike in 2024, while USD/JPY hovered near a 40-year trough for the yen. The shift in Fed rate-hike probabilities marks a pivot from positioning earlier in the quarter, pressuring the greenback across major pairs.

The yen's proximity to its weakest level in four decades keeps intervention risk elevated. Japanese authorities have previously stepped into currency markets when USD/JPY surged past key psychological levels, and current price action suggests that threshold remains in play. The combination of a softer dollar and a historically weak yen creates a compressed trading range with heightened volatility potential.

Market participants have reduced bets on Fed tightening as economic data and Powell's recent commentary suggest the central bank may hold rates steady through year-end. This repricing has unwound some of the dollar's rate-differential advantage, particularly against currencies where central banks have paused or pivoted.