Benefiting from stronger-than-expected US economic data, a cooling of global market risk appetite, and the Federal Reserve's hawkish monetary policy stance, the US dollar index has rebounded strongly. Supported by multiple positive factors, the euro/dollar exchange rate is likely to continue its downward trend, while the dollar/yen exchange rate is expected to continue rising. Even with ongoing discussions about the Bank of Japan's foreign exchange intervention, it is unlikely to reverse this upward trend. The current global foreign exchange market has once again tilted towards the dollar, with non-US currencies generally under pressure. The short-term strength of the dollar is supported by both solid fundamentals and policy factors, significantly increasing the trading risk of shorting the dollar. The US economy is remarkably resilient, consistently outperforming major global economies and demonstrating a significant relative advantage over competitors like the Eurozone and Japan. Whether in terms of consumer market vitality, economic growth momentum, or monetary policy flexibility, the overall strength of the US economy far surpasses that of most developed economies, providing a solid foundation for the dollar's exchange rate. Market institutions predict that the USD/JPY exchange rate is poised to challenge the 170 mark, and the Japanese authorities' foreign exchange intervention has failed to substantially suppress the upward trend of the USD/JPY exchange rate. Policy and geopolitical support: The Fed's hawkish stance combined with the Middle East situation is favorable for the dollar. Boosted by rising risk aversion in global markets and hawkish signals from the Federal Open Market Committee (FOMC), the dollar successfully recovered some of the losses from the previous two trading days. The Fed clearly stated that if US inflation data fails to consistently decline towards the 2% policy target, the Fed will restart interest rate hikes at any time. Currently, core inflation in the US remains sticky, and the pace of decline in service sector inflation is slow, making it far more difficult than the market previously expected to achieve the 2% inflation target. The escalating geopolitical conflict in the Middle East has further increased uncertainty in global energy prices, making the prospect of cooling US inflation increasingly bleak and providing crucial support for the Federal Reserve to maintain its tight monetary policy and strengthen the dollar. The continued escalation of geopolitical risks has completely shattered market expectations of an early interest rate cut by the Fed, further solidifying the policy support logic for the dollar. Economic Fundamentals: US Consumption Resilience Stands Out, But Hidden Risks Lurk US retail sales grew again in June, marking an impressive eight consecutive months of positive growth. In the past twelve months, eleven months have seen retail sales expansion, fully demonstrating the strong resilience of the US domestic demand market and serving as a core signal of the overall stability of the US economy. Wells Fargo, a well-known financial institution, bluntly stated that any trade shorting the US consumer market and predicting a downturn in the US economy is highly likely to end in losses. A stable US job market, steady wage growth, and existing savings provide strong resilience in the consumer sector, making it a core pillar for the US economy to withstand downward pressure. The recent recovery in US consumer demand is mainly attributed to the temporary decline in international crude oil and refined oil prices, which has reduced daily living costs for residents. However, industry insiders generally believe that the consumption benefits brought by lower oil prices are not sustainable in the long term. Meanwhile, the renewed and escalating geopolitical conflicts in the Middle East could easily drive a rebound in global oil prices, raising domestic inflation and the cost of living in the US. This would likely suppress retail consumption growth and bring new uncertainties to the recovery of the US retail sector. Economic Divergence Between Europe and the US: Continued Weakness in the Eurozone, Euro Exchange Rate Under Pressure Compared to the robust US economy, the recovery pace of other major global economies is weaker, and the downside risks are greater. This divergence in economic fundamentals further amplifies the advantage of the US dollar. The Eurozone, heavily reliant on oil and gas imports, is under the most significant pressure, with energy cost fluctuations continuing to impact its industrial production and economic recovery. The Eurozone not only faces an unstable energy supply chain but is also mired in stagflation, characterized by high inflation and sluggish economic growth, resulting in severely insufficient momentum for industrial recovery. Despite market participants' anticipation that the European Central Bank (ECB) may tighten monetary policy and raise interest rates to control inflation in 2026, the continued slowdown in Eurozone GDP growth will significantly limit the ECB's tightening space, making the implementation of its monetary policy a major obstacle. The interest rate differential between the Federal Reserve and the ECB will remain high, and this core difference directly dominates the exchange rate trend between the US dollar and the euro. Based on the significant divergence in fundamentals and monetary policies between the US and Europe, Goldman Sachs has significantly lowered its euro/dollar exchange rate forecast: lowering its six-month forecast from 1.18 to 1.12, and its twelve-month forecast from 1.20 to 1.12. The misalignment of monetary policies and the divergence in economic fundamentals between the US and Europe are unlikely to reverse in the short term, and the euro will continue to face depreciation pressure, with the euro/dollar exchange rate likely to remain weak for a long time. Market sentiment supports this: cooling risk appetite highlights the safe-haven attribute of the dollar. The continued weakening of global market risk appetite has provided another important support for the dollar. A sell-off in major US tech stocks led to a decline across the three major US stock indices, and a general pullback in risk assets. Meanwhile, escalating geopolitical conflicts in the Middle East have fueled a rapid rise in global risk aversion, leading to a surge of funds into traditional safe-haven assets such as the US dollar and US Treasury bonds. This has significantly boosted market demand for the dollar and driven its continued appreciation. Against the backdrop of heightened global geopolitical risks and increased capital market volatility, the dollar's safe-haven attributes have been fully activated, making it a core choice for capital seeking refuge and further solidifying its strong performance. USD/JPY Exchange Rate Trend: Intervention Fails to Stop Depreciation; Yen's Long-Term Weakness is Set The overall strengthening of the US dollar has pushed the USD/JPY exchange rate to resume its upward trend, increasing pressure on the yen to depreciate. Faced with the continued weakening of the yen, Japanese Finance Minister Saki Katayama once again signaled verbal intervention, stating that the Japanese government will closely monitor foreign exchange market fluctuations and will take decisive intervention measures to stabilize the exchange rate should abnormally sharp fluctuations occur. This statement marks the second time recently that the Japanese authorities have signaled intervention, aiming to deter speculative funds and alleviate the pressure of rapid yen depreciation through verbal pronouncements. Given that the statement was released just before the Japanese market closed for the weekend, the market generally anticipated that Japanese authorities might take advantage of the thin trading and low liquidity over the weekend to intervene in the foreign exchange market and curb the yen's decline. Kshitij Consultancy Services, the most accurate consulting firm in predicting the yen's exchange rate in the second quarter according to Bloomberg, pointed out that the Japanese government's foreign exchange intervention is unlikely to fundamentally reverse the USD/JPY exchange rate trend. Short-term intervention can only bring about a temporary yen rebound and cannot change the long-term trend. Historically, single, phased foreign exchange interventions by Japan can only temporarily correct the yen's oversold trend and cannot counteract the core differences in monetary policy and economic fundamentals between the US and Japan. Based on a comprehensive analysis of multiple indicators, including the performance of US and Japanese stock markets, the long-term interest rate differential between the Federal Reserve and the Bank of Japan, and the offshore RMB/JPY exchange rate trend, institutions predict that the USD/JPY exchange rate will steadily climb to the 170 mark by 2027, and the long-term depreciation trend of the yen has not yet ended.