Investors doubt US fiscal consolidation plans, pressuring USD while Japanese inflation data fuels BoJ rate hike expectations.
The US dollar extended losses as markets questioned the credibility of potential Treasury measures to address fiscal concerns. Investors focused on signals of increased fiscal consolidation, but skepticism remains over meaningful policy changes.
Japanese inflation data reinforced expectations for a 25bps Bank of Japan rate hike in September. Core-core CPI rose to 1.9% in July, aligning with market pricing for tighter monetary policy. Meanwhile, US Treasury yields showed little change despite fiscal uncertainty.
MUFG analysts expressed doubt that the US will deliver effective fiscal consolidation, limiting near-term upside for EUR/USD. The dollar’s decline reflects broader concerns over policy credibility and its impact on bond markets.