The Chinese Yuan's (CNY) recent strength, particularly against the Euro, is not just a market phenomenon. It reflects a deliberate PBOC policy to manage the EuroCNH cross to placate European concerns over China's massive trade surplus, making EuroCNH a key political and policy indicator.
Unlike interventions in 2022 and 2024 which were amplified by a cascade of short-covering, the current market has fewer accumulated speculative Yen short positions. This lack of 'fuel' means any new central bank intervention to strengthen the Yen will likely have a much smaller impact on the currency.
Key US policy risks, particularly the AIPA tariff ruling and the Lisa Cook confirmation hearing, present multiple channels for potential dollar downside but very few for upside. This creates an asymmetric risk profile where the dollar has significantly more room to fall than to rise from these specific events.
The US dollar's muted reaction to the DOJ subpoena on the Fed Chair was not just complacency. The market saw stabilizing factors like strong Fed pushback and a key senator's vow to block Fed nominations until the issue is resolved, creating critical political leverage.
While a failure by Japan's ruling LDP to secure a majority could cause a short-term Yen rally, the medium-term bearish outlook is unchanged. Neither a new coalition nor the current party is likely to enforce fiscal discipline or prompt faster BOJ rate hikes, leaving fundamental weaknesses in place.