**[Original Article by Mitrade News Desk, August 26, 2025]**
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**Forex Market Analysis: Dollar Maintains Gains Amid Fed Uncertainty, Yen Steadies After BOJ**
The forex market remained highly active on Monday, as investors weighed fresh signals from global central banks. The US dollar index consolidated recent gains, bolstered by persistent uncertainty regarding the Federal Reserve’s rate path. Meanwhile, the Japanese yen exhibited steadiness following last week’s decisions by the Bank of Japan (BOJ), and emerging market currencies experienced mixed performances amid shifting risk sentiment.
### US Dollar Holds Firm as Jackson Hole Looms
The US dollar index hovered near recent highs on Monday, maintaining strength after a week of hawkish monetary policy signals. Money markets continued to focus on upcoming commentary from Federal Reserve officials due at the Jackson Hole symposium later in the week.
– **Market Context:**
– The US dollar index stood at 105.60, close to mid-August highs.
– Investors are cautious ahead of Federal Reserve Chair Jerome Powell’s speech scheduled for Friday.
– Last week’s Fed minutes reaffirmed that policymakers remain data-dependent but are not ruling out further rate hikes to combat inflation.
– **Key Economic Data Supporting the Dollar:**
– Recent US economic releases — including retail sales, industrial production, and labor market data — have consistently surpassed expectations.
– Core PCE inflation readings remain above the Fed’s 2 percent target.
– Long-term Treasury yields have backed up to their highest levels since 2007, underpinning the greenback’s appeal.
– **Fed Rate Path Uncertainty:**
– While the majority of investors expect the Federal Reserve to keep rates steady at its next meeting, the probability of at least one more rate hike in 2025 has risen in recent days.
– Persistent inflation and robust economic indicators have diminished expectations for imminent rate cuts.
### Japanese Yen Stabilizes After BOJ Stands Pat
After a volatile reaction to the Bank of Japan’s policy statement last week, the Japanese yen stabilized, finding a footing against major crosses.
– **Policy Overview:**
– On Friday, the BOJ maintained ultra-loose monetary policy and refrained from signaling any imminent normalization efforts.
– Governor Kazuo Ueda acknowledged rising inflationary pressures but reiterated the need for patience until wages and inflation rise sustainably.
– The central bank’s yield-curve-control policy and asset purchases remain unchanged.
– **Yen Performance:**
– The dollar-yen pair traded at 145.80, comfortably within the upper end of its recent range.
– Market participants are attentive to potential intervention signals from Japanese authorities, especially as USD/JPY approaches levels previously defended by the Ministry of Finance.
– **Risks and Market Sentiment:**
– Japanese officials have repeatedly emphasized their readiness to act against “excessive volatility.”
– Despite ongoing BOJ dovishness, investors remain wary of sudden government intervention.
– Implied volatility on USD/JPY options has edged higher, reflecting these risks.
### Euro, Pound Struggle Amid Divergent Growth Prospects
The euro and British pound both encountered downward pressure as contrasting economic performances across developed economies influenced forex flows.
– **Euro Performance:**
– EUR/USD slipped toward 1.0830, pressured by signs of slowing economic activity in the euro area.
– The S&P Global PMI for the eurozone contracted further, fueling speculation that the ECB is done tightening.
– **Key Points for the European Outlook:**
– Germany’s manufacturing recession has deepened, while services sector growth has stalled.
– Hawkish comments from some ECB officials have been outweighed by sluggish growth and moderating inflation.
– The ECB is now widely expected to hold rates steady at its next meeting.
– **British Pound Trends:**
– GBP/USD retreated to 1.2690, extending multi-week lows.
– UK inflation has begun
Read more on GBP/USD trading.