The US dollar traded near its lowest level in nearly four years on Wednesday, after US President Donald Trump downplayed its recent weakness, exacerbating the sell-off of the US currency and supporting the rise of the yen, euro and pound sterling, ahead of the Federal Reserve's monetary policy decision.
Currency markets were absorbing the sharp sell-off that hit the dollar in the previous session, which pushed the euro above the $1.2 level for the first time since 2021. The single European currency recorded a slight decline of 0.36% to $1.1994 in the latest trading.
The British pound fell 0.33% to $1.3796, after rising 1.2% in the previous session, hitting its highest level since 2021.
The Swiss franc rose against the dollar to its highest level in more than a decade, as investors continued to flock to the safe-haven currency amid global political risks.
The Swiss currency has gained about 3% since the beginning of this year, after rising about 14% during 2025, to reach 0.77 francs per dollar, with increasing demand for alternatives to the US currency.
In contrast, the dollar index, which measures the performance of the US currency against six major currencies, rose 0.22% to 96.114, after recording a decline of more than 1% in the previous session, when it reached its lowest level in four years at 95.566.
US President Donald Trump said on Tuesday that the dollar was fantastic when asked if he thought it had been overvalued. Traders interpreted his remarks as a signal to intensify dollar selling.
Although the president's remarks were not new, they came at a time when the dollar is facing increasing pressure, with traders preparing for the possibility of coordinated intervention between US and Japanese authorities to calm the yen's movements.
Kyle Rodda, senior market analyst at Capital.com, said, This shows there is a crisis of confidence in the US dollar.
He added to Reuters: It seems that as long as the Trump administration continues its erratic policies in the areas of trade, foreign affairs and the economy, this weakness may continue.
The dollar fell more than 9% during 2025 and started this year weakly, down about 2.3% in January so far, with investors worried about the Trump administration’s volatile approach to trade and international diplomacy, concerns about the independence of the Federal Reserve, as well as large increases in public spending.
Investors are currently focused on the Federal Reserve's monetary policy decision, due later today, where the federal funds rate is expected to remain unchanged in a pause that could last even after the recent meetings of US central bank chairman Jerome Powell in March and April.
Added to this is the nomination of a possible replacement for Powell in May, the efforts to oust Federal Reserve Governor Lisa Cook, and the criminal investigation opened by the Trump administration against the central bank chairman, all of which cast a shadow over today's meeting.
Prashant Nivana, chief interest rate strategist for Asia Pacific at TD Securities in Singapore, said: “Trump’s strategy is simple: get the economy running at a faster pace before the midterm elections and take advantage of the Fed’s reluctance to cut interest rates by allowing the dollar to fall.” He added: “Trump is authorizing the dollar to be sold.”
The Japanese yen is gaining temporarily.
The fragile Japanese yen received additional support from a weaker dollar, jumping more than 1% to a three-month high of 152.10 yen per US dollar on Tuesday, although it fell 0.4% to 152.79 yen on Wednesday.
The yen's rise since Friday is attributed to talk of the United States and Japan conducting exchange rate reviews, which are often seen as a precursor to official intervention.
Japanese Finance Minister Satsuki Katayama said on Tuesday that the government would take appropriate action regarding the foreign exchange market if necessary, but declined to comment on the sharp rise in the yen.
Investors remain unconvinced of the impact of any actual intervention in the currency market, especially with Japanese Prime Minister Sanae Takaichi basing her surprise election campaign on expanding economic stimulus measures, while the Japanese elections are scheduled for February 8.
Vibhv Lumba, head of currency and interest rates at financial services firm Klay Group, said: “I think they have done what they have done now. The price will stay within this range. They have postponed reaching the 160 level for at least three months, and that in itself is an achievement.”
In other currency markets, the Australian dollar rose to $0.70225, its highest level since February 2023, benefiting from the general weakness of the US dollar, and after data showed that annual consumer price inflation rose in the last quarter of the year, reinforcing expectations of an imminent interest rate hike by the Reserve Bank of Australia.
The Australian dollar was last trading down 0.34% at $0.6987, while the New Zealand dollar fell 0.5% to $0.6015.
