Last week’s joint intervention by the United States and Japan to support the Japanese yen has raised fresh questions about the future of international currency coordination, as the operation proceeded without broader participation from other Group of Seven (G7) economies.
Although the intervention temporarily strengthened the yen, analysts argue that the absence of coordinated action from Europe and other major economies reflects a broader decline in multilateral economic cooperation and a growing preference for bilateral deals under the Trump administration.
The intervention was jointly carried out by Washington and Tokyo after the yen weakened to multi decade lows against the U.S. dollar. U.S. Treasury Secretary Scott Bessent and Japanese Finance Minister Satsuki Katayama later confirmed the operation and defended its objectives.
The yen has largely maintained its gains since the intervention, although investors remain uncertain whether further support will follow or whether the Bank of Japan will reinforce the move through additional interest rate increases.
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One key factor behind U.S. involvement appears to have been concerns over the U.S. Treasury market.
Japan remains the largest foreign holder of U.S. government bonds. A large unilateral intervention by Tokyo would likely have required selling significant amounts of U.S. Treasuries to obtain dollars for prolonged currency operations, potentially disrupting already volatile bond markets.
By participating directly, the United States reportedly helped provide dollar liquidity while selling euros rather than dollars, reducing pressure on Treasury markets and limiting broader financial instability.
Despite the shared interest among G7 economies in preventing excessive currency volatility, other members of the group did not participate.
Historically, major currency interventions have often involved coordinated action across the G7. Following Japan’s 2011 earthquake and tsunami, G7 nations jointly intervened to weaken an excessively strong yen. Earlier coordinated efforts also included interventions supporting the euro in 2000 and global liquidity operations after the September 11 attacks.
In contrast, the latest operation remained strictly bilateral, even though the United States reportedly sold euros during the intervention without direct European participation.
The European Central Bank declined to comment publicly, while the International Monetary Fund has also remained largely silent.
The intervention reflects a broader shift in U.S. foreign economic policy under President Donald Trump, whose administration has increasingly favored bilateral negotiations over multilateral coordination.
Rather than pursuing comprehensive international agreements similar to the Plaza Accord or Louvre Accord, Washington has increasingly relied on country specific arrangements.
Japan has also deepened bilateral economic cooperation with the United States, including major investment commitments linked to previous tariff negotiations, reinforcing this new framework.
U.S. officials also pointed to wider regional concerns.
Treasury Secretary Bessent argued that continued yen weakness risked placing downward pressure on other Asian currencies, particularly South Korea’s won, as exporters sought to remain competitive with Japanese manufacturers.
China’s yuan remains another major regional factor, although Beijing falls outside the G7 framework. Broader discussions involving China are expected only at future G20 meetings.
For decades, the G7 served as the primary forum for coordinated responses to major currency instability.
From stabilizing the euro during its early years to responding collectively after major financial crises, coordinated interventions carried significant market credibility because they demonstrated unified political and monetary commitment.
The latest U.S. Japan intervention marks a departure from that tradition, suggesting that future currency management may increasingly rely on bilateral arrangements rather than collective action.
The U.S. Japan intervention highlights more than an attempt to stabilize the yen. It reflects a structural shift in global economic governance. The declining role of coordinated G7 action suggests that multilateral mechanisms are gradually giving way to transactional bilateral partnerships, particularly under the Trump administration.
While bilateral interventions may offer quicker and more flexible responses, they lack the collective market impact that historically made G7 operations highly effective. The absence of Europe and other major economies also raises questions about the future cohesion of the G7 as a forum for managing global financial stability.
For investors, this evolving landscape increases uncertainty. Without unified international coordination, currency markets may become more volatile as governments pursue national interests independently rather than through collective action. Whether future administrations restore broader multilateral cooperation or continue this bilateral approach will shape the next phase of global foreign exchange policy.
With information from Reuters.
The United States Federal Reserve is set to hold interest rates steady as inflationary pressures mount, driven by heightened fuel prices as tensions between the US and Iran continue.
The central bank said on Wednesday that it will maintain rates at 350-375 basis points during the second monetary policy decision under new Chairman Kevin Warsh.
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“Inflation remains elevated relative to the Committee’s 2 percent goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy. The Committee will deliver price stability,” the central bank said in a statement upon the release of its decision.
CME FedWatch, which tracks the likelihood of monetary policy decisions, forecast a 66.3 percent chance of maintaining rates, while there was a 33.7 percent chance that rates would increase to 375-400 basis points.
Of the 12, three members, Beth M Hammack, Neel Kashkari, and Lorie K Logan, voted to raise rates by 25 basis points.
“My colleagues and I considered the economic shocks of recent years, strained supply chains arising from the pandemic, military conflicts, energy supply disruptions, substantial increases in tariff rates, and yes, the surge in AI-related investment,” Warsh told reporters.
“We are not relying on any one individual piece of data as cover or as an excuse, or as validation. What I care about and what I think the Committee cares about is trends on the data.”
Monetary policy decisions have become more uncertain as Warsh has scrapped forward guidance, which typically helps financial institutions and journalists better understand upcoming policy choices.
That is putting pressure on analysts.
“With little guidance on the reaction function under the new chairman, markets are filling the void with speculation that Warsh may be eyeing a surprise hike to reinforce anti-inflation credibility,” Barclays economists said in a note.
Citadel Securities earlier this week forecast a rate hike. Meanwhile, analysts at S&P Global forecast that rates would hold steady.
At the last meeting, the central bank’s governors were evenly split on whether to raise interest rates this year, as the central bank maintained rates during its first meeting under Warsh.
Warsh had previously said that there was “no tolerance” for inflation as the central bank pushes to reach the Fed’s 2 percent target.
Financial pressures on the broader market eased last month, with consumer inflation moderating. The Consumer Price Index report released in July for the month of June by the US Labor Department’s Bureau of Labor Statistics showed a 0.4 percent decline in consumer inflation, marking the first monthly decline since April 2020 in the early days of the COVID-19 pandemic. However, that was a correction from the previous month, when the CPI rose by 0.5 percent.
The CPI remains elevated at 3.5 percent on an annual basis, according to the report, though that is still a slowdown from 4.2 percent in May. However, consumers are still feeling the pinch, especially at the petrol pump.
Prices are on the upswing. The average price for a gallon of petrol is $4.09 ($1.08 per litre), up 3 cents from this time last week, and up from $3.86 ($1.02 per litre) this time last month, according to the American Automobile Association (AAA), which tracks daily petrol prices. By comparison, daily petrol prices were $2.98 ($0.78 per litre) when the US and Israel first struck Iran on February 28.
Those pressures are echoed by a slump in consumer confidence for the third straight month, according to The Conference Board, which released its report on Tuesday.
“Consumers anticipate little improvement in business conditions over the next six months,” Dana M Peterson, chief economist at The Conference Board, said upon the report’s release.
The decision is overshadowed by pressure from the White House. Interest rates have been a point of contention between Trump and the central bank. Trump has long pushed the Fed to cut rates, putting former Chair Jerome Powell in the crosshairs and making him the subject of investigations by the US Department of Justice.
But Warsh has yet to become a target of Trump’s scorn. “Kevin is fantastic,” he told reporters on Monday on board Air Force One. “He’s got a board, and the board members are very political.”
Trump made those claims despite the central bank’s longstanding commitment to maintaining its independence from political pressure.
Douglas Rissing/iStock via Getty Images
Escalating Middle East tensions are driving crude (USO) (BNO) prices sharply higher and triggering what Nomura’s Charlie McElligott calls a “vicious rate vol impulse”—creating treacherous conditions heading into next week’s Federal Reserve meeting.
McElligott is dismissing the buyside’s interpretation that
The European Central Bank kept interest rates unchanged on Thursday, holding steady as it waits to see how much of a lingering energy shock from the Middle East conflict will feed through into eurozone inflation.
The ECB’s governing council held the deposit facility rate at 2.25%, with the main refinancing rate staying at 2.4% and the marginal lending facility at 2.65%.
Monetary policy for the eurozone is set through these three key interest rates, with the deposit facility rate serving as the main benchmark.
“The outlook for energy prices, while highly volatile, currently stands close to the baseline of the June Eurosystem staff projections and well above the levels recorded prior to the conflict in the Middle East,” the central bank’s statement read.
“Uncertainty remains high and the full inflationary impact of the energy shock has yet to play out. The Governing Council is therefore closely monitoring the intensity and duration of the shock, as well as its indirect and second-round effects,” it added.
The decision follows confirmation last week that eurozone inflation eased to 2.8% in June from May’s 3.2%, the first decline this year, with core price growth slowing to 2.4%.
The pause comes just six weeks after the ECB raised rates for the first time in nearly three years, responding to a war-driven energy shock that had pushed inflation to its highest since September 2023.
ECB President Christine Lagarde has been careful to keep the door open.
At the central bank’s Sintra forum, Lagarde insisted June’s move was not an “insurance hike” but a response to a genuine inflation problem, with projections showing a return to the 2% target only in late 2027, and only if monetary policy tightened further.
Lagarde also refused to pre-commit to a path, saying “forward guidance is not currently in the cards.”
July is not a forecasting round and economists at ING, for example, had argued the bank would prefer to wait for September’s fresh projections, when they see a second hike as the more realistic outcome.
The complication is that the shock behind June’s hike is back.
Oil neared $120 a barrel in March before sliding to around $72 after an interim peace agreement at the end of June, but the truce has frayed badly this month, with the US and Iran exchanging fresh strikes, attacks on tankers and renewed sanctions pushing Brent back above $90 a barrel.
A prolonged rise in energy prices would feed through to household bills and headline inflation in the second half of the year, precisely the second-round effects central bankers currently fear.
As the chart shows, Frankfurt tightened from previously being far below its peers.
The Federal Reserve’s target range sits at 3.50% to 3.75% and the Bank of England’s rate at 3.75%, while the Swiss National Bank is parked at zero.
Both of the ECB’s larger counterparts decide again next week.
The Fed announces next Wednesday, with futures markets assigning roughly an 89% probability to a hold, according to CME’s FedWatch tool, after June’s unanimous decision and projections signalling no cuts this year.
The Bank of England follows the next day, on 30 July, with new forecasts in tow and economists overwhelmingly expect a hold at 3.75%, although a Reuters poll found nearly 40% see at least one hike before year-end, after two policymakers voted for an increase to 4% in June.
For now, the ECB is the only major Western central bank to have actually raised rates in this cycle.
WASHINGTON — Ever since Kevin Warsh was nominated by President Trump in late January to lead the Federal Reserve, a question has lingered: Will he seek to raise interest rates to tame inflation or cut them as Trump has long demanded?
On Wednesday, Warsh may provide the first hints of an answer when he oversees his first Fed policy meeting as chair and holds a news conference afterward. Bond markets, which can swing sharply on a chair’s pronouncements, will be watching particularly closely for any signs of which way he leans.
“We expect the press conference to be pivotal,” Jonathan Pingle, an economist at investment bank UBS, wrote in a note. “This will be Kevin Warsh’s first public appearance as Chair. … We do not really know what his policy views are.”
Economists say Warsh will likely aim for a neutral approach, largely because he is taking over the Fed at a challenging time. Rising inflation has made it all but impossible for the Fed to cut interest rates anytime soon, which could stimulate growth and further raise prices. Hiring has improved noticeably since the beginning of the year, removing another key rationale for rate cuts. And the other 11 policymakers on the Fed’s rate-setting committee — including Warsh’s predecessor, former chair Jerome Powell — are split on whether an increase in the Fed’s key rate will be needed or if it can stay unchanged.
Oil prices have fallen sharply on news that the U.S. and Iran have reached an initial deal to end their war, which could eventually cool inflation. Yet it’s unclear whether a permanent agreement can be reached.
“The right thing to do now is wait and see,” said William English, an economist at the Yale School of Management and a former top Fed economist.
Inflation has jumped to a three-year high of 4.2%, the government said last week, mostly because of higher gas prices. Even Trump has backed off a bit from his relentless demands for lower rates, and instead has argued that rate hikes — which the Fed undertakes to cool the economy and slow inflation — aren’t necessary.
In an interview earlier this month on NBC’s “Meet the Press,” Trump said, “Kevin is fantastic and I want him to do whatever he wants,” but added, “there’s no reason to raise rates.”
On Wednesday, the Fed is widely expected to keep its key rate at about 3.6%, where it has remained since last December. When the Fed reduces its rate, over time it can lower other borrowing costs for things like mortgages, auto loans, and business loans.
Still, some changes are expected, which will disappoint those hoping for lower borrowing costs: The Fed is likely to drop language that suggests its next move will be a rate cut, and instead adopt wording that is more neutral. Several Fed policymakers in recent weeks have said that the Fed’s most likely next move is a hike, rather than a cut.
The central bank is also scheduled to release its quarterly economic projections, which include forecasts for how the Fed’s key rate will change over the next three years, on Wednesday. In March, those projections suggested the Fed would cut its rate once this year. Yet on Wednesday they will likely show no change in 2026, with maybe one or two cuts next year, economists say.
Warsh has criticized the projections for providing too much “forward guidance” to financial markets and leading Fed officials to stand by their forecasts for too long, even as the economy changes. Fed watchers will look closely to see if Warsh participates in the quarterly projections. If he doesn’t submit his own forecasts, it could be a sign he will seek to get rid of them entirely in the coming months.
Outside of policy, Warsh is expected to bring a different style to the Fed than Powell, according to people who’ve worked with him. He wants Fed policymakers to give fewer speeches, have more debates behind closed doors and will likely avoid commenting on the daily ups and downs of the economy. Powell was relatively plainspoken and straightforward, while Warsh has suggested he sees the famously oracular Alan Greenspan, the Fed’s chair from 1987 to 2005, as a model.
“He’s just going to say less, because he doesn’t find that stuff very helpful,” said Robert Tetlow, a former senior policy adviser at the Fed.
Randall Kroszner, an economist at the University of Chicago who served on the Fed’s governing board from 2006 to 2009, when Warsh was also a governor, said the new chair would likely focus on bigger-picture questions, such as how AI will impact the economy. He will avoid thornier issues, such as whether tariffs raise inflation, which Powell was willing to address.
By avoiding such hot-button issues, the Fed could attract less negative attention from the White House, Kroszner said.
“He’s going to stay away from those,” Kroszner added. “If the Fed is to maintain its independence, it needs to maintain its focus.”
While seeking Trump’s nomination, Warsh called for “regime change” at the Fed and criticized the central bank for not preventing the 2021-22 inflation surge, when prices jumped 9.1% in a year, the biggest spike in four decades.
Yet Kroszner said Warsh will likely to seek to build consensus around changing things like the Fed’s communications policies, rather than imposing them. So far, former Fed officials say he hasn’t sought to fire top staff.
“He’s not there to break things,” Kroszner said.
During his Senate confirmation hearing in April, Warsh said he would focus on quelling inflation.
“Inflation is a choice, and the Fed must take responsibility for it,” he said then.
If he acts on that sentiment by keeping rates unchanged — or even raising them — Trump could end up disappointed in another Fed chair. He often threatened to fire Powell, whom he also appointed, for not cutting rates deeply enough.
“There’s at least a risk here that six months down the road, Trump is fulminating about how he didn’t get what he wanted from Warsh, and he’d like to fire Warsh,” English said.
Rugaber writes for The Associated Press.