(Refiles Jan. 27 report to clarify analyst comment in paragraph 17 on possible U.S. involvement in yen intervention)
The U.S. dollar fell for a fourth straight trading day on Tuesday, reaching a four-month low as market participants weighed the prospect of coordinated foreign exchange intervention by U.S. and Japanese authorities alongside a looming Federal Reserve interest rate decision.
Pressure on the dollar this month has come from several fronts cited by traders - including U.S. President Donald Trump’s trade policy moves and growing debate about the Federal Reserve’s independence. Domestic political tensions have added to the uncertainty: disagreement between Republicans and Democrats over funding for the Department of Homeland Security - following the fatal shooting of a second U.S. citizen by federal immigration officers in Minnesota - has raised the prospect of another U.S. government shutdown.
Trade policy rhetoric has also moved markets. President Trump accused South Korea’s legislature of "not living up" to its trade deal with Washington and said late on Monday he would raise tariffs on imports from South Korea into the United States - including autos, lumber and pharmaceuticals - to 25%. He has similarly warned he would impose a 100% tariff on Canada if it proceeds with a trade deal with China.
Those actions have coincided with currency moves across the region. The Korean won strengthened 0.45% to 1,439.14 per dollar. "With the 'tariff man' showing no sign of repentance and the U.S. 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 at Corpay in Toronto. "Positive fundamentals should eventually reassert themselves, but for now, no one is willing to catch the falling chainsaw that is the U.S. dollar," he added.
Against a broad basket of currencies, the dollar fell 0.48% to 96.64, trading near a 3-1/2-year low seen in September. The currency had earlier reached a high of 97.287 in volatile trading.
Investors are closely watching the Federal Reserve's two-day meeting this week for signals about the trajectory 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. Rees added that the president could name a candidate to succeed Chair Jerome Powell soon after the rate decision, particularly if he disagrees with the Fed's stance.
A significant focus for foreign exchange traders has been the yen. The Japanese currency rallied by as much as 3% over the previous two sessions amid talk of the U.S. and Japan conducting rate checks - a practice often seen as a precursor to formal intervention. That strength pushed the yen below 153 to the dollar; it was last quoted at 152.96.
Parisha Saimbi, EM Asia FX and local markets strategist at BNP Paribas, said talk of possible U.S. involvement implied there could be "multiple parties" ready to intervene, a departure from prior intervention episodes in recent years. While officials in Japan and the United States have not confirmed any rate checks, a person familiar with the matter told sources that the New York Federal Reserve had queried dealers on dollar/yen trading last Friday. Japanese authorities said on Monday they have been in close coordination with the U.S. on foreign exchange.
Other major currencies moved higher against the U.S. dollar. The euro was last up 0.7% at $1.19635, hovering around levels not seen since June 2021. Sterling gained 0.8% to $1.3786, its strongest since October 2021. The Australian dollar rose 0.8% to $0.69705, marking its highest level since February 2023.
Market context and immediate implications
Traders are balancing near-term policy signals from central banks with evolving trade-policy announcements and domestic political developments. The combination of potential coordinated intervention in the yen and elevated trade-policy rhetoric has amplified currency volatility, while the Fed meeting is expected to be a focal point for direction in rates and currency markets.
Data and statements cited in this report
- Dollar index: down 0.48% to 96.64, earlier high 97.287.
- Korean won: strengthened 0.45% to 1,439.14 per dollar.
- Yen: rallied up to 3% over two sessions, trading at 152.96 per dollar.
- Euro: $1.19635, up 0.7%.
- Sterling: $1.3786, up 0.8%.
- Australian dollar: $0.69705, up 0.8%.
Quotes included from market participants and strategists reflect their assessments of policy uncertainty, trade tensions and the risk of intervention in currency markets. Officials have not publicly confirmed rate checks, though a Fed check with dealers was reported, and Japanese authorities acknowledged close coordination with the U.S. on foreign exchange.