The past week was marked by an event that upended traditional notions of currency diplomacy. The U.S. Department of the Treasury conducted a large-scale intervention to support the Japanese yen, but did so in an unexpected way—by selling euros rather than dollars. Meanwhile, the European Central Bank (ECB) was informed only after the deal was completed.
This decision breaks with decades of established practice, in which Western central banks coordinated such actions in advance. ECB President Christine Lagarde and U.S. Treasury Secretary Scott Bessent discussed what had happened only the next day, when the Federal Reserve Bank of New York had already fully executed the U.S. Treasury's order.
Why the Choice Fell on the Euro
The choice of currency for the intervention was not accidental. Selling dollars would have directly contradicted the strong-dollar policy that Bessent has consistently promoted. Using euro-denominated reserves instead allowed Washington to solve the problem without harming its own currency. Analysts note that the yen carry trade rule no longer works, and stabilizing the Japanese currency requires different mechanisms.
The market reacted instantly: the dollar-yen exchange rate fell from around ¥164 to ¥158 in a short period, subsequently stabilizing at 158.40. Japanese stock indices held up, showing only a minor correction.
Europe's Reaction and Future Risks
At the ECB, the event was described as a violation of decades of coordination, underscoring the unprecedented nature of the step. The U.S. Treasury counters that decisions on allocating stabilization fund resources are made solely based on market liquidity and asset costs, and that confidentiality in talks with foreign partners is standard practice.
Economists link this tactic to fears that Tokyo might respond by selling off U.S. government bonds. Currently, traders estimate a 44% probability of a Bank of Japan rate hike in September, while central bank Governor Kazuo Ueda warns of growing inflationary risks.
European officials are trying to determine whether this intervention will be a one-off case. However, the episode clearly demonstrates: the Trump team is ready to defend allied currencies using new, sometimes radical methods.
My view: this step is a signal of a fundamental shift in the global currency architecture. The U.S. has de facto acknowledged that the dollar is too strong to support allies, but is not ready to sacrifice its status. Using the euro as a "buffer" creates a dangerous precedent that could undermine trust in central bank coordination in the future. For the crypto market, this is an indirect positive: rising volatility in fiat currencies traditionally boosts interest in decentralized assets.