The U.S. dollar slid to a near four-year low on Tuesday as investors remained cautious ahead of the Federal Reserve’s latest interest rate decision and monitored the risk of potential currency intervention by U.S. and Japanese authorities.
The Dollar Index, which measures the greenback against a basket of six major currencies, dropped 1.3% to 96.22, marking its weakest level since early 2022.
President Donald Trump downplayed the dollar’s decline, saying the currency was “finding its own level” and could move “up or down like a yo-yo,” signaling little concern over recent volatility.
Dollar hits lowest level since February 2022
Heavy selling pressure for a fourth consecutive session pushed the Dollar Index to its lowest point since February 23, 2022. Traders turned cautious as the Federal Reserve began its two-day policy meeting.
The central bank is widely expected to keep interest rates unchanged. U.S. economic growth remains resilient, unemployment is still relatively low, and policymakers are likely to wait for clearer signals before making any adjustments.
The dollar’s sharp decline this month has been driven by several factors, including concerns over the Federal Reserve’s independence, shifting trade policies, and geopolitical decisions made by President Trump.
Joseph Brusuelas, chief economist at RSM US, said that while he does not expect full de-dollarization, investors are increasingly diversifying away from the greenback due to policy uncertainty coming from Washington.
Currency intervention in focus
The Japanese yen also remained under close watch after falling sharply in recent sessions. Reports that the New York Fed had conducted rate checks on key currency pairs raised speculation that U.S. and Japanese officials may be preparing to intervene.
Concerns intensified after Japan’s prime minister warned against excessive volatility in the yen. Additional pressure on the currency came from a selloff in Japanese government bonds, fueled by worries over expanded fiscal spending.
Analysts noted that Japan’s long period of ultra-loose monetary policy, combined with deeply negative real yields, has kept downward pressure on the yen, especially as U.S. yields surged in recent years.
Euro extends gains as dollar weakens
EUR/USD traded flat near 1.2041 on Tuesday, reaching that level for the first time since mid-2021 as investors continued to avoid the dollar.
According to ING, technical indicators suggest that recent support levels could hold if the pair attempts a breakout. However, the bank expects resistance to cap gains, with the euro likely to end the quarter closer to 1.17.
GBP/USD edged slightly lower to 1.3828. Analysts said sterling’s relative strength earlier in the week may have been driven by asset managers unwinding short positions after the dollar sell-off.
Elsewhere, USD/KRW fell 1% to 1,431.95 after South Korea’s currency weakened on concerns over higher U.S. tariffs. President Trump said duties on certain imports could rise to 25% due to delays in a bilateral trade agreement.
Meanwhile, AUD/USD and NZD/USD were little changed, trading near 0.7007 and 0.6040 respectively.
