Dollar Hits 4-Year Low as Trump Defends Decline
Synopsis
The US dollar hit a four-year low Tuesday, falling 1.4 per cent to 95.77 against major currencies, its weakest level since February 2022. President Trump dismissed concerns about the decline, saying the dollar’s value is “great,” signalling an administration preference for a weaker currency. New tariff threats against South Korea and Canada, along with speculation of coordinated US-Japanese intervention, are driving the sell-off. The euro rose above $1.20 for the first time since June 2021 as investors continue the “Sell America” trade.
The dollar hit a four-year low after Trump’s remarks to reporters in Iowa ahead of an economic speech. Asked whether the dollar had fallen too far, the president replied that the dollar is “great,” signalling comfort with or preference for a weaker currency stance.
“Trump’s comment tells the market that the US wants a weaker dollar,” said Marc Chandler, chief market strategist at Bannockburn Capital Markets. “The market is happy to serve it up.” The dollar slid 1.% against a basket of currencies to 95.77, its lowest level since February 2022.
Multiple Factors Driving the Decline
The currency’s weakness reflects more than Trump’s comments. Investors are increasingly worried about Federal Reserve independence as the president continues pressing for rate cuts. Political disputes in Washington, including funding disagreements that could trigger another government shutdown, have added to uncertainty.
Trade policy has intensified pressure. Trump criticised South Korea’s legislature over trade commitments and said he would raise tariffs to 25 per cent on imports including autos, lumber, and pharmaceuticals. He also threatened a 100 per cent tariff on Canada if it moves ahead with a trade deal with China.
“We’ve already seen very large moves in recent days, and Trump’s comment poured gasoline on an existing fire,” Chandler said.
Key Market Movements
• Dollar fell 1.4% to 95.77, its weakest since February 2022
• The Korean won strengthened 1 per cent to 1,431.85 per dollar
• Euro climbed 1.4 per cent to $1.20375, above $1.20 for the first time since June 2021
Intervention Fears Add to Pressure
Currency markets have been focused on the Japanese yen, which rallied as much as 4 per cent over two sessions on speculation that the US and Japan may conduct rate checks, often a prelude to intervention. The yen traded near 152.23 per dollar.
“There are several possible drivers, but the main one is reports that the US Treasury may consider direct currency intervention,” said Jonas Goltermann of Capital Economics. While no official confirmation has been made, a source told Reuters the New York Federal Reserve checked dollar-yen rates with dealers last week.
Japanese officials said they are coordinating closely with the US on foreign exchange issues. Sterling also strengthened, rising 1.2 per cent to $1.3844, its highest level since September 2021.
Understanding the “Sell America” Trade
“With tariff threats mounting and the US heading toward another potential shutdown, policy uncertainty is soaring again,” said Karl Schamotta of Corpay. He said this has intensified the “Sell America” trade that has dominated markets for much of the past year.
While fundamentals may eventually improve, Schamotta said few investors want to catch what he called “the falling chainsaw that is the US dollar.”
Federal Reserve Meeting in Focus
Markets are watching the Federal Reserve’s two-day meeting for signals on policy direction. Analysts widely expect rates to remain unchanged, a stance Trump has openly opposed. Some fear he could soon announce a successor to Fed Chair Jerome Powell, a move that could further undermine confidence in the central bank and add pressure to the dollar.
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