The US Treasury Department may be using the euro rather than the dollar to fund yen purchases, according to strategists, a move designed to avoid putting pressure on the US currency and dispel any market doubts about the nation's commitment to a "strong dollar policy."

Sources familiar with the matter indicated that on Friday, July 31, at least two major US banks received inquiries from the New York Federal Reserve asking them to confirm the yen's exchange rate against the euro. Separate reports from last week stated that the New York Fed had already 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, a 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 through the euro differs from the US's previous market maneuvers, which typically involved direct dollar purchases. According to the latest triennial central bank survey from the Bank for International Settlements, the euro is the world's second most traded currency, accounting for roughly 29% of the $9.6 trillion daily global foreign exchange market in April 2025.

"If the US Treasury directly sold dollars, it would look bad, so they are using the euro instead," said Jason Wong, a currency strategist at Bank of New Zealand in Wellington. "However, the end result is the same—they will eventually need to reposition their holdings back into euros, which might still involve selling dollars, but in a less transparent way."

The euro has been relatively weak since Japan initiated its latest intervention on July 30, depreciating against most G10 currencies and falling roughly 4% against the yen. The Bloomberg Euro Index edged down 0.2% on Monday, August 2, but remained near its highest level since June 17.

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

Furthermore, since the "pure foreign exchange" portion of US reserves (excluding gold and Special Drawing Rights) is primarily composed of euros and yen, "this can be viewed as a cooperative action within the framework of reserve asset allocation to jointly curb yen depreciation with Japan," they added.