The U.S. dollar sank to a near four-year low against a basket of currencies on Tuesday, as traders kept watch for possible coordinated currency intervention by U.S. and Japanese authorities and this week’s Federal Reserve interest rate decision.
The dollar has been under intense pressure this month from factors including U.S. President Donald Trump’s policymaking and concerns about Federal Reserve independence.
In addition, disagreement between Republicans and Democrats over funding for the Department of Homeland Security after the fatal shooting of a second U.S. citizen by federal immigration officers in Minnesota, has raised concerns of another U.S. government shutdown.
Meanwhile, Trump accused South Korea’s legislature of “not living up” to its trade deal with Washington, and he said late on Monday he would increase tariffs on imports from Asia’s fourth-biggest economy into the U.S. such as autos, lumber and pharma to 25%.
Trump has also in recent days said he would impose a 100% tariff on Canada if it follows through on a trade deal with China.
Trump late Tuesday afternoon suggested the value of the dollar was fine with him.
“No, I think it’s great, the value of the dollar … dollar’s doing great,” Trump said when asked by a reporter if he thought the value of the dollar had declined too much.
Trump made the comment to reporters in Iowa ahead of a speech expected to center on the economy as he seeks to rally his stalwart rural supporters in a state that hosts key congressional races in November.
“If you look at China and Japan, I used to fight like hell with them, because they always wanted to devalue,” Trump said.
Trump said he does not want to see the value of the dollar decline more.
“I would want it to… just seek its own level,” Trump said.
The U.S. dollar sank even further after the brief remark.
And some traders suggest there could still be plenty of downside.
“The U.S. dollar continues to lose momentum as political uncertainty resurfaces in United States,” Steve Kulchyk, vice president of options dealing and structured products at Monex Canada. “Renewed tariff threats from Trump and civil unrest are undermining confidence and encouraging diversification. While tariff threats can briefly support the dollar through risk-off flows, markets increasingly view them as growth-negative and politically motivated. Combined with expectations that U.S. rate cuts may come sooner than elsewhere, the balance of risks points to a softer U.S. dollar trend.”
“Headline-driven intraday volatility is still expected, but it seems investors are getting tired of the roller coaster,” he added.
The Canadian dollar was up about two-thirds of a cent on Tuesday against the greenback, reflecting the drop in the U.S. dollar.
“The Canadian dollar stands to benefit from this U.S. dollar weakness, supported by relatively stable domestic fundamentals and the prospect of new or expanded trade relationships beyond the US, even as tariff rhetoric remains a near-term risk. Markets continue to view a severe breakdown in Canada/US trade as unlikely, keeping CAD resilient,” Kulchyk said.
Elsewhere, the Korean won strengthened 0.45% against the dollar to 1,439.14 per dollar.
“With the ‘tariff man’ showing no sign of repentance and the U.S. government headed into another shutdown, economic policy uncertainty is soaring once again, leading to an intensification in the ‘Sell America’ trade that has dominated markets for the better part of a year,” Karl Schamotta, chief market strategist with payments company Corpay in Toronto, said.
“Positive fundamentals should eventually reassert themselves, but for now, no one is willing to catch the falling chainsaw that is the U.S. dollar,” he said.
Against a basket of currencies, the dollar fell 0.9% to 96.212, its lowest since February 2022.
Investors will watch the Fed’s two-day meeting this week for clues to the path of monetary policy.
“The big risk, as we see it, is not in the rate decision. We’re pretty confident that the Fed is going to hold rates unchanged. But Trump is not going to like that,” said Nick Rees, head of macro research at Monex.
Trump could announce his candidate for Chair Jerome Powell’s successor soon after the rate decision, especially if the president does not support the central bank’s decision, Rees said.
Much of the foreign exchange market’s focus has been on the yen, which rallied by as much as 3% over the last two sessions on talk of the U.S. and Japan conducting rate checks – often seen as a precursor to official intervention.
That helped the yen slip below 153 to the dollar. It was last trading at 152.76.
“While there are several potential culprits for the dollar’s drop, the main driver is the fallout from reports that the US Treasury is considering direct currency intervention,” Jonas Goltermann, deputy chief markets economist at Capital Economics, said in a note.
While there has been no confirmation of rate checks from officials in Japan or the U.S., a person familiar with the matter told Reuters that the New York Federal Reserve had checked dollar/yen rates with dealers on Friday.
Japanese authorities said on Monday they have been in close coordination with the U.S. on foreign exchange.
The euro was last 0.96% higher at $1.19805, trading around levels last seen in June 2021, and just shy of the $1.20 mark. Similarly, sterling added 0.7% to $1.3776, its strongest since October 2021.
The Australian dollar rallied 0.9% to $0.6979, its highest since February 2023.
Reuters, Globe staff