US dollar sinks to four-year low as Trump brushes off the decline
US dollar notes are seen in this Nov 7, 2016 picture illustration. (File photo: REUTERS/Dado Ruvic/Illustration)
NEW YORK: The US dollar extended losses to sink to a four-year low against a basket of currencies on Tuesday (Jan 27), 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 centre on the economy, as he seeks to rally his stalwart rural supporters in a state that hosts key congressional races in November.
"No, I think it's great, the value of the dollar ... dollar's doing great," Trump said when asked by a reporter if he thought the value of the dollar had declined too much.
Losses in the dollar index accelerated after Trump's comments, hitting a session low of 95.566 and the lowest since February 2022.
"If you look at China and Japan, I used to fight like hell with them, because they always wanted to devalue," Trump said.
Trump said he does not want to see the value of the dollar decline more.
"I would want it to ... just seek its own level," Trump said.
The dollar had come under pressure in recent sessions as traders braced for a possible coordinated currency intervention by US and Japanese authorities.
Trump's remark signals to the market that the US 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 US citizen by federal immigration officers in Minnesota has raised concerns of another US 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 US such as autos, lumber and pharmaceuticals to 25 per cent.
Trump has also in recent days said he would impose a 100 per cent tariff on Canada if it follows through on a trade deal with China.
"We've already had some very sizeable 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 per cent against the dollar to 1,431.85 per dollar.
"With the 'tariff man' showing no sign of repentance and the US 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 US dollar," he said.
Against a basket of currencies, the dollar fell 1.4 per cent 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 per cent over the past two sessions on talk of the US 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 US, 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 US on foreign exchange.
The euro rose 1.4 per cent to US$1.20375, trading above US$1.20 for the first time since June 2021. Similarly, sterling added 1.2 per cent to US$1.3844, its strongest since September 2021.
