The US dollar struggled near four-year lows on Wednesday after President Donald Trump brushed off its recent weakness, exacerbating greenback selling and lifting the yen, euro and sterling ahead of the Federal Reserve policy decision.
Currency markets were digesting the previous session's heavy dollar selling that took the euro past the $1.2 level for the first time since 2021. The single currency was last 0.36% weaker at $1.1994.
Sterling was 0.33% softer at $1.3796 after rising 1.2% in the previous session as it hit the highest level since 2021.
The dollar index, which measures the US currency against six major rivals, was 0.22% higher at 96.114 after dropping over 1% in the previous session as it hit a four-year low of 95.566.
Trump said on Tuesday the value of the dollar was "great", when asked whether he thought it had declined too much. Traders took his comments as a signal to intensify dollar selling.
While the president's comments were not exactly new, they came at a time when the dollar has been under pressure as traders braced for a possible coordinated currency intervention by US and Japanese authorities to stabilise the yen.
"It shows there's a crisis of confidence in the US dollar," said Kyle Rodda, a senior market analyst at Capital.com. "It would appear that while the Trump administration sticks with its erratic trade, foreign and economic policy, this weakness could persist."
The dollar tumbled over 9% in 2025 and has started the year on the back foot, already down about 2.3% in January as investors grappled with Trump's erratic approach to trade and international diplomacy, fears over the Federal Reserve's independence and huge increases in public spending.
Investors' focus will be on the Federal Reserve's policy decision later in the day, where the central bank is expected to stand pat in a pause that investors see lasting beyond US central bank chief Jerome Powell's final meetings in March and April.
The nomination of a potential replacement for Powell in May, the effort to fire Fed Governor Lisa Cook, and a criminal investigation by the Trump administration into the central bank chief all loom over the meeting.
"Trump's strategy is simple. Run the economy hot into the midterms and get ahead of the Fed that appears reluctant to cut by letting the USD slide," said Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities in Singapore.
"Trump is greenlighting selling the dollar."
Yen's reprieve
The frail Japanese yen got a further boost from the dollar weakness, surging over 1% to a three-month high of 152.10 per US dollar on Tuesday, although the currency was a 0.4% weaker at 152.79 on Wednesday.
The yen's rise since Friday has been spurred by talk of the US and Japan conducting rate checks - often seen as a precursor to official intervention.
Japanese Finance Minister Satsuki Katayama said on Tuesday that the government would take appropriate action on foreign exchange if needed but declined to comment on a sharp spike in the yen.
Investors remain unconvinced about the impact of an actual intervention, especially because Prime Minister Sanae Takaichi is basing her snap election campaign on expanded stimulus measures. Japan's election is set for February 8.
"I think they've done what they've done now. It will stay in this range. They've postponed the 160 by three months at least, which is an achievement in itself," said Vaibhav Loomba, head of FX and rates at financial services firm Klay Group.
The Australian dollar rose to $0.70225, its highest level since February 2023 amid the broad dollar weakness and after data showed consumer price inflation rose at a faster annual pace in the December quarter, stoking expectations of a near-term rate hike from the Reserve Bank of Australia.
The Aussie was last 0.34% weaker at $0.6987, while New Zealand dollar lost 0.5% to $0.6015.
