Dollar Slides to Four-Year Low After Trump Signals Comfort With Weakness

The U.S. dollar fell to its lowest level in four years on Tuesday after comments by President Donald Trump were interpreted by markets as tacit approval of a weaker currency. The decline reflects growing investor unease over trade tensions, political uncertainty, and questions surrounding U.S. monetary policy independence.

Trump Remarks Trigger Fresh Dollar Selling

The dollar extended recent losses after Donald Trump described the currency’s value as “great” when asked whether it had declined too much. The remark, made ahead of an economic speech in Iowa, was widely seen as signalling tolerance for further depreciation. Currency traders responded by accelerating dollar selling, pushing the U.S. dollar index down 1.4% to 95.77, its lowest level since February 2022.

Trade Tensions and Policy Uncertainty Weigh

Analysts attribute the dollar’s weakness to a combination of aggressive trade rhetoric and domestic political risks. Trump has accused South Korea of failing to honour its trade commitments and announced plans to raise tariffs on South Korean imports, including automobiles, lumber, and pharmaceuticals, to 25%. He has also threatened a 100% tariff on Canadian goods if Ottawa proceeds with a trade deal with China. Separately, partisan disputes in Washington over Department of Homeland Security funding have revived fears of another U.S. government shutdown, further undermining confidence.

Federal Reserve Independence in Focus

Concerns about the autonomy of the Federal Reserve have added to pressure on the dollar. Trump has repeatedly urged the central bank to cut interest rates and is expected to react negatively if policymakers hold rates steady at their ongoing meeting. Market participants are also watching for any announcement on a successor to Fed Chair Jerome Powell, which could heighten volatility if perceived as politically motivated.

Important Facts for Exams

• The U.S. Dollar Index measures the dollar against a basket of major global currencies.
• Currency intervention often follows informal “rate checks” by central banks with dealers.
• Trade tariffs can influence exchange rates by affecting capital flows and growth expectations.
• Central bank independence is a key factor in maintaining currency stability.

Yen Strengthens as Intervention Speculation Grows

Attention in foreign exchange markets has centred on the Japanese yen, which has strengthened sharply amid speculation of coordinated U.S.–Japan intervention. The yen traded near 152 per dollar after reports that the New York Federal Reserve checked dollar-yen rates with market participants. The euro rose above $1.20 for the first time since mid-2021, while sterling climbed to its strongest level since September 2021, underscoring the broad-based nature of the dollar’s decline.