The dollar fell against most of its major peers as potential US involvement in foreign-exchange intervention in Japan hurt sentiment toward the world’s reserve currency. Gold rose above $5,000 for the first time on haven demand.
The Bloomberg Dollar Spot Index slid as much as 0.5% to the lowest level since September after a rate check Friday by the Federal Reserve Bank of New York spurred speculation the US may assist Japan in efforts to weaken the greenback versus the yen. Japan’s currency jumped as much as 1.2%. Equity-index futures indicated modest losses for the US and Europe.
Meanwhile gold extended a breakneck rally fueled by President Donald Trump’s reshaping of international relations and investor flight from sovereign bonds and currencies. Silver jumped more than 6% to a record high.
The volatility in foreign-exchange markets comes as Japan’s top currency chief Atsushi Mimura said authorities in Tokyo will respond in close coordination with their counterparts in Washington. Earlier, Japan’s Prime Minister Sanae Takaichi warned markets that the government is ready to take action.
“The bigger signal is policy coordination,” said Daniel Baeza, senior vice president at Frontclear. “If markets interpret coordination as a willingness to tolerate easier global dollar conditions, especially alongside a dovish Fed reaction function, that could reinforce short-term dollar downside.”
Traders interpreted the New York Fed’s actions as an indication the central bank was preparing to assist Japanese officials in intervening directly in the currency market to prop up the yen. The dollar fell the most since May last week amid unpredictable US policymaking, tariff tensions between the US and Europe, and attacks on the Federal Reserve’s independence.
Over the weekend, concerns also rose about another US government shutdown, while Trump threatened 100% tariffs on imports from Canada.
In other corners of the market, Treasuries edged higher amid tariff threats and rising geopolitical tensions. Equity gauges fell in Japan, South Korea and Hong Kong.
Asian currencies benefited from the weak dollar with the Malaysian ringgit rising to the strongest level since 2018, and the South Korean won climbing to its highest level in about three weeks. Singapore’s currency advanced to its strongest level since 2014.
Attention is turning to the dollar and Japan once again after a surge in the Asian nation’s bond yields last week unsettled global fixed-income markets. The coming days are pivotal for investors as the Fed prepares to deliver its policy decision and megacaps including Microsoft Corp. and Tesla Inc. report earnings.
For many dollar watchers, signs of US support to boost the yen reopen the debate about potential coordinated foreign-exchange intervention to guide the greenback lower against the currencies of its key trading partners.
The thinking goes that such a pact would help American exporters compete with rivals such as China and Japan.
“If the New York Fed chooses to join in, then that would amplify the yen rally,” said Gareth Berry, a strategist at Macquarie Bank Ltd. in Singapore. “And not just for symbolic reasons. Japan has lots of USD to sell, but the NY Fed has an infinite amount. It would also be interpreted as a sign that Trump wants a weaker dollar more generally.”
The growing risk of another partial government shutdown will reinforce the self-feeding dynamic to increase diversification away from the greenback and US assets. The US dollar’s selloff will accelerate as foreign investors increase their currency-hedging ratios and now that the yen depreciation trend has been stalled via action from officials.