The U.S. dollar hovered near four-year lows on Wednesday after President Donald Trump dismissed concerns over its recent weakness. His remarks reinforced selling pressure on the greenback and supported gains in the yen, euro, and sterling ahead of the Federal Reserve’s policy decision.
Forex markets were still absorbing the previous session’s sharp dollar sell-off, which pushed the euro above the $1.20 mark for the first time since 2021. The single currency later eased slightly, last trading 0.36% lower at $1.1994.
Sterling also pulled back, slipping 0.33% to $1.3796 after rallying 1.2% a day earlier to its strongest level since 2021.
The Dollar Index, which tracks the U.S. currency against six major peers, edged 0.22% higher to 96.114 after plunging more than 1% in the prior session, when it touched a four-year low of 95.566.
Trump said on Tuesday that the dollar’s value was “great” when asked whether it had fallen too far. Markets interpreted the comment as an implicit green light to extend dollar selling.
Although Trump’s stance on the currency was not new, it came at a sensitive moment. The dollar has already been under pressure as traders brace for potential coordinated currency intervention by U.S. and Japanese authorities aimed at stabilizing the yen.
Kyle Rodda, senior market analyst at Capital.com, said the situation reflects a growing lack of confidence in the dollar. He added that as long as U.S. trade, foreign, and economic policy remain unpredictable, downward pressure on the currency could continue.
The dollar fell more than 9% in 2025 and has started the new year weakly, already down about 2.3% in January. Investors have been unsettled by Trump’s volatile trade policies, concerns about the Federal Reserve’s independence, and sharp increases in government spending.
Attention now turns to the Federal Reserve’s policy announcement later in the day. The central bank is widely expected to keep interest rates unchanged, with markets anticipating that the pause could extend beyond Chair Jerome Powell’s final meetings in March and April.
Uncertainty surrounding the Fed has intensified following speculation over Powell’s potential replacement in May, efforts to remove Fed Governor Lisa Cook, and a criminal investigation launched by the Trump administration into the central bank chief.
Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities, said Trump’s strategy appears straightforward: allow the economy to run hot into the midterm elections while pressuring the Fed by letting the dollar weaken. In his view, the administration is effectively encouraging further dollar selling.
Yen finds relief amid intervention talk
The Japanese yen benefited further from the softer dollar, jumping more than 1% on Tuesday to a three-month high of 152.10 per dollar. On Wednesday, it gave back some gains, trading 0.4% weaker at 152.79.
The yen’s rebound since last Friday has been fueled by reports of U.S. and Japanese rate checks, which are often viewed as a precursor to direct market intervention.
Japan’s finance minister said authorities would act appropriately in currency markets if needed, though she declined to comment directly on the yen’s recent surge.
Skepticism remains over how effective any intervention would be, particularly as Prime Minister Sanae Takaichi campaigns for a snap election on a platform of increased fiscal stimulus. Japan’s election is scheduled for February 8.
Vaibhav Loomba, head of FX and rates at Klay Group, said recent actions may have delayed further yen weakness for several months, describing that outcome as a meaningful short-term achievement.
Aussie dollar hits fresh highs
The Australian dollar climbed to $0.70225, its highest level since February 2023, supported by broad dollar weakness and data showing consumer inflation accelerated in the December quarter. The figures boosted expectations of a near-term interest rate hike by the Reserve Bank of Australia.
The Aussie later trimmed gains, last trading 0.34% lower at $0.6987, while the New Zealand dollar fell 0.5% to $0.6015.
