The US Dollar hovered near four-year lows on Wednesday after President Donald Trump downplayed its recent decline, fuelling further Dollar selling and boosting the Yen, Euro, and Pound ahead of the Federal Reserve’s policy announcement.
Currency markets were still reacting to heavy Dollar selling in the previous session, which pushed the Euro above $1.20 for the first time since 2021. The single currency was down 0.36% at $1.1994 at the time of writing.
Meanwhile the Pound fell 0.33% to $1.3796, following a 1.2% gain in the previous session that had taken it to its highest level since 2021.
The Dollar index, which tracks the US currency against six major peers, rose 0.22% to 96.114, following a more than 1% drop in the previous session that took it to a four-year low of 95.566.
On Tuesday, Trump described the Dollar as “great” when asked if it had fallen too far, remarks that traders interpreted as a cue to step up Dollar selling, Reuters reports.
Although the President’s comments were not particularly surprising, they arrived at a moment when the Dollar was under pressure, with traders anticipating a potential coordinated intervention by US and Japanese authorities to stabilise the Yen.
The Dollar fell more than 9% in 2025 and has begun the year on the defensive, dropping around 2.3% in January as investors contended with Trump’s unpredictable trade and foreign policy, concerns over the Federal Reserve’s independence, and massive public spending increases.
Market attention is now on the Federal Reserve’s policy decision later in the day, where the central bank is expected to hold rates steady in a pause that investors anticipate will extend beyond Fed Chair Jerome Powell’s final meetings in March and April.
The meeting is overshadowed by the nomination of a potential replacement for Powell in May, efforts to remove Fed Governor Lisa Cook, and a criminal investigation into the central bank chief initiated by the Trump administration.
Elsewhere, the weakened Japanese Yen gained additional support from the Dollar’s decline, jumping over 1% to a three-month high of 152.10 per US Dollar on Tuesday, although it eased 0.4% to 152.79 on Wednesday.
The Yen’s rally since Friday has been driven by talk of US and Japanese authorities conducting rate checks, which are often viewed as a precursor to official intervention.
Japanese Finance Minister Satsuki Katayama said on Tuesday that the government would take appropriate action in the foreign exchange market if necessary but declined to comment on the Yen’s sharp surge.
Investors remain sceptical about the effectiveness of any intervention, particularly as Prime Minister Sanae Takaichi is running her snap election campaign on a platform of expanded stimulus measures. Japan’s election is scheduled for 8th February.