The US dollar extended its losses on Monday, pressured by a coordinated US-Japan intervention to support the yen and a sell-off triggered by last week's Federal Reserve policy meeting. The Bloomberg Dollar Spot Index briefly fell to a one-month low, declining 0.5% against G-10 currencies. However, by 11:20 a.m. in London, the index had recovered most of its losses, paring the decline to 0.1%.

The yen rebounded from a four-decade low following the joint intervention by US and Japanese authorities. US Treasury Secretary Scott Bessent stated that the US would not hesitate to intervene again in the market if necessary, confirming Japan has a powerful partner in curbing excessive yen depreciation. The dollar fell 0.3% against the yen.

The root of the dollar's decline, however, can be traced back to last week. The Federal Reserve's decision to hold interest rates steady raised questions about new Chair Kevin Warsh's commitment to curbing inflation, leading to a 1.3% drop in the dollar index. ING FX strategist Francesco Pesole noted, "It all started with that Fed meeting. The market was heavily long the dollar. If you look at positioning indicators, short-term investors were almost universally betting big on a stronger dollar."

Data shows that in the run-up to the Fed's July 28-29 meeting, bullish bets on the dollar had surged to their highest level since 2014. Strategists suggest that to avoid further weakening the dollar, the US Treasury may have used euros rather than dollars to buy yen during the intervention. Since Japan began its latest round of currency intervention on July 30, the euro has fallen against most G-10 currencies.

Pesole added that many traders are now considering whether to go long-term short on the dollar. However, he believes that currency intervention for the yen can only be a temporary fix, and the dollar's future direction will ultimately be determined by the Federal Reserve.