Strategists suggest the US Treasury may be funding yen purchases through the euro rather than the dollar to avoid putting pressure on its own currency and to prevent market doubts about its "strong dollar policy."

According to sources, on Friday, July 31, at least two major US banks received inquiries from the New York Fed requesting confirmation of the yen's exchange rate against the euro. Separately, reports from last week indicated that the New York Fed had sold euros and bought yen on behalf of the US Treasury.

"The US likely does not want to be seen as selling dollars," said David Forrester, senior strategist at Credit Agricole CIB in Singapore. "The US adheres to a strong dollar policy and does not want to be interpreted as trying to gain a competitive advantage by weakening its currency, which would violate the G20 consensus on foreign exchange markets."

This intervention via the euro channel differs from past US market actions, which typically involved direct dollar intervention. According to the latest triennial central bank survey by the Bank for International Settlements (BIS), the euro is the world's second most traded currency, accounting for approximately 29% of the global $9.6 trillion daily foreign exchange volume as of April 2025.

"It would look bad for the US Treasury to sell dollars directly, so they switched to euros," said Jason Wong, FX strategist at Bank of New Zealand in Wellington. "But the end result is the same—they will eventually need to reposition back into euros, which may still involve selling dollars, just in a more opaque manner."

The euro has shown relative weakness since Japan began its latest intervention on July 30, depreciating against most G10 currencies and falling roughly 4% against the yen. The Bloomberg Euro Index edged 0.2% lower on Monday, August 2, but remains near its highest level since June 17.

"The primary goal of the intervention appears to be responding to Japan's call to curb excessive yen depreciation, rather than deliberately weakening the dollar," wrote Junya Tanase and Patrick Locke, strategists at JPMorgan Chase, in a client note.

Additionally, since the "pure foreign exchange" portion of US reserves (excluding gold and Special Drawing Rights) mainly consists of euros and yen, "this action can be seen as a cooperative effort with Japan within the framework of reserve asset allocation to curb yen depreciation," they added.