The U.S. dollar extended
losses to sink to a four-year low against a basket of currencies
on Tuesday, after President Donald Trump said the value of the
dollar is “great” when asked whether he thought it 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.
The comment weighed on the dollar, which had come under
pressure in recent sessions as traders braced for a possible
coordinated currency intervention by U.S. and Japanese
authorities.
Trump’s remark signals to the market that the U.S. would
prefer a weaker dollar, said Marc Chandler, chief market
strategist at Bannockburn Capital Markets.
“The market is happy to give it to them,” he said.
The dollar’s recent weakness stems from several factors
including Trump’s policymaking and concerns about Federal
Reserve independence, analysts said.
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.
Trump accused South Korea’s legislature of “not living up”
to its trade deal with Washington, and 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 pharmaceuticals
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.
“We’ve already had some very sizable moves in the last few
days… (Trump’s comment on the dollar) put gasoline on an
already existing fire,” Bannockburn’s Chandler said.
‘TARIFF MAN’ SHOWS NO SIGN OF REGRETS
On Tuesday the Korean won strengthened 1% against the
dollar to 1,431.85 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,” said Karl Schamotta, chief market
strategist with payments company Corpay in Toronto.
“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 1.4% to
95.77, 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.
The president has been urging the Federal Reserve to cut
rates.
Trump could announce his candidate for Federal Reserve Chair
Jerome Powell’s successor soon after the rate decision,
especially if the president does not support the central bank’s
decision, Rees said.
YEN INTERVENTION WATCH
Much of the foreign exchange market’s focus has been on the
yen, which rallied by as much as 4% over the past 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 152.23.
“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 rose 1.4% to $1.20375, trading above $1.20
for the first time since June 2021. Similarly, sterling
added 1.2% to $1.3844, its strongest since September 2021.