The US dollar falls to a four-year low, but Trump is not worried: the dollar is performing well and can find a reasonable level.

Investors' concerns about the unpredictability of US policy are deepening, with the US dollar falling to its lowest level against major currencies in four years. At this moment, US President Trump does not appear worried. On Tuesday, he stated that the dollar is performing well and expressed no concern over its decline, predicting that exchange rates would fluctuate.

Asked by reporters whether he was worried about the dollar's depreciation, Trump replied:

"No, I think the dollar is doing great. I think the value of the dollar—just look at our trade—the dollar is performing excellently."

"I hope the dollar can—find its own reasonable level, which is the fair thing to do."

Trump hinted that he could manipulate the dollar's exchange rate, saying, "I can make it go up and down like a yo-yo." However, he believes doing so would not be good, comparing it to hiring unnecessary workers just to boost employment figures, and criticizing some Asian economies he thinks are trying to devalue their currencies.

While Trump seems unconcerned about the dollar's depreciation, commentators believe that the dollar's decline is not over. In the long term, structural factors such as the Federal Reserve's independence, widening budget deficits, concerns related to fiscal profligacy, and political polarization are putting downward pressure on the dollar.

By midday on Tuesday, Eastern US time, the ICE Dollar Index (DXY), which tracks the dollar against a basket of six major currencies including the euro, fell below 96.20, hitting its lowest since February 2022, dropping over 0.9% intraday. Both the Bloomberg Dollar Spot Index and DXY extended their losing streaks to four days, with the former reaching its lowest since March 2022. Both indexes posted their largest four-day drop since Trump announced reciprocal tariffs in April of last year.

Elias Haddad, Global Markets Strategy Director at Brown Brothers Harriman & Co., commented: "Structural factors weighing on the dollar—including declining confidence in US trade and security policies, politicization of the Fed, and deterioration of US fiscal credibility—may outweigh a relatively neutral cyclical dollar environment and drive the dollar lower."

As the dollar softens, other major global currencies are rising. The yen is set to gain over 3% in the last three trading days. The euro rose to as high as 1.1990 against the dollar, its highest since June 2021, and the pound broke above 1.3790, its highest since October 2021. An emerging market currency index climbed for the fourth consecutive day. Against the backdrop of the dollar's retreat, the index is currently at record highs.

TrumpPolicy Uncertainty Weighs on the Dollar

The dollar's weakness reflects investors' cautious sentiment amid difficulty in predicting the direction of Washington's policies, including Trump's threat to take over Greenland. According to Bloomberg, investors are seeking hedges against further dollar weakness, with short-term options premiums rising to the highest level since Bloomberg began tracking the data in 2011.

Trading volume through the Depository and Clearing Corporation on Monday hit the second-highest in history, only trailing the sell-off on April 3 last year. "We are seeing risk premiums on the dollar accumulate again," wrote the Barclays team in a report Tuesday, noting the dollar's poor performance following Trump’s Greenland threat.

Uncertainty over the choice of the Fed Chair is also pressuring the dollar. According to reports, some analysts believe Trump may announce a replacement for Powell after the Fed announces its rate decision on Wednesday, especially if Trump does not support the Fed's latest decision. The Trump administration's criminal investigations into Powell and attempts to fire Fed Governor Lisa Cook will also draw attention at this meeting.

The administration's preference for a weaker dollar and the risk of a federal government shutdown further add to uncertainty. If the Republicans do not strip funding for the Department of Homeland Security, Democrats vow to block the congressional spending bill.

Yen’s Strong Rebound Sparks Speculation of Intervention

The yen has become another driver of the dollar’s weakness. After reports last Friday that the Japanese government might intervene in the FX market—or even jointly with the US to support the yen—the yen has climbed for three consecutive trading days. By Tuesday’s US stock market midday session, the dollar fell below 152.60 yen, approaching 152.50, with intraday losses exceeding 1% and marking its lowest level since late October 2025.

Last Friday, the yen saw two surges in one day. Market participants first suspected the Ministry of Finance conducted FX checks, typically seen as a warning signal to traders. Afterwards, the media cited some traders as saying the New York Federal Reserve had queried dealers about the dollar-yen rate, which Wall Street viewed as a sign the Fed was preparing to assist Japanese officials in directly intervening to support the yen.

Japanese Finance Minister Mitsuki Katayama again warned of possible intervention after the G7 meeting on Tuesday, saying the government is ready to coordinate with the US and, if necessary, would work closely with the US to take "appropriate measures" on the exchange rate.

The Nomura Securities forex strategy team noted in a report that Tuesday's dollar-yen moves resemble those during government interventions in 2022 and 2024. The team believes the latest move "is not a one-off decline in the dollar-yen but a continued drop following the initial sharp fall," similar to trends seen during past periods of intervention.

The Bank of Japan's daily account balance data to be released on Wednesday will provide more information and may reveal whether the Ministry of Finance intervened and the scale of such intervention.

The possibility of coordinated intervention is making investors reluctant to push the yen lower. Parisha Saimbi, BNP Paribas Emerging Markets Asia FX and Local Markets Strategist, said: "Indicators from the US seem to signal risk to the market, with multiple parties possibly prepared to intervene, which is different from what we have seen in the past."

Although neither Japanese nor US officials have confirmed FX checks, market data from the Bank of Japan showed last Friday's yen surge against the dollar was likely not due to Japanese intervention.

George Catrambone, head of fixed income at DWS Americas, said that the Federal Reserve officials' FX checks last Friday "further pressured the dollar." Global growth expectations remain resilient, as reflected in stock market gains, which may prompt investors to seek higher returns outside the US.

Karl Schamotta, Chief Market Strategist at Corpay, wrote: "Washington’s shift towards protectionism and weakening security commitments are prompting other countries to increase defense spending and sharpen competitive focus, narrowing the growth and rate differentials that historically benefited the dollar."

Nick Rees, Head of Macroeconomic Research at Monex, said that whether or not the Fed participates in coordinated intervention, "macro traders are making their own decisions that the dollar is on a downtrend."

The market currently expects the Fed to keep rates unchanged on Wednesday, with forecasts for two 25-basis-point cuts this year, which contrasts with expectations from many other major central banks. Kit Juckes, Head of FX Strategy at Société Générale, said: "We may now see a partial (US) government shutdown, and dollar bulls still have many concerns. US growth could still determine how much the Fed loosens policy and whether the dollar can weaken materially from here."

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