The dollar slid on Thursday on further signs that U.S. President Donald Trump may adopt a softer stance in tariff negotiations and heightened expectations of Federal Reserve rate cuts.
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The dollar steadied on Wednesday, but was still set for its biggest weekly fall since April after U.S. President Donald Trump brushed off this month’s slide, prompting concern from European central bankers over the strength of the euro.
Other currencies and gold have shot up in recent weeks as investors have grown more nervous about their U.S. exposure.
The euro topped $1.2 for the first time since 2021, the pound hit 4-1/2-year highs, while the yen is set for its strongest monthly performance against the dollar since April, as speculation of joint Japanese-U.S. official intervention to support the Japanese currency persists.
The dollar index , which tracks its performance against six other currencies, rose 0.3% to 96.216, but remained near four-year lows, having lost nearly 2.7% since last Wednesday, its steepest weekly decline since April’s “Liberation Day” market turmoil.
Trump said on Tuesday the value of the dollar was “great”, when asked if he thought it had declined too much. Traders took this as a signal to intensify dollar selling, ahead of a Federal Reserve policy decision later on Wednesday.
“It shows there’s a crisis of confidence in the U.S. 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.”
ECB officials voice concern
The dollar weakness may offer some respite to Japanese officials, but is already a source of concern for others.
Two European Central Bank officials said on Wednesday the strength of the euro could influence monetary policy. Austrian central bank governor Martin Kocher told the Financial Times the ECB may have to consider another interest-rate cut if the strength of the euro starts to affect the outlook for inflation.
Bank of France Governor François Villeroy de Galhau said in a LinkedIn post that policymakers were “closely monitoring the appreciation of the euro and its potential impact on lower inflation”.
The euro fell by as much as 0.63% to a session low of $1.19623. It was last down 0.5% on the day at $1.19715, but still set for a 2% gain this month.
“The U.S. would like a stronger yen. The Japanese certainly don’t want an ever-weakening yen. So until it’s gone a significant distance, everybody’s on the same side. The euro is, in really effective terms, very strong at the moment and the economy’s not got any inflation to worry about, really,” Societe Generale head of FX strategy Kit Juckes said.
“The odd man out is the dollar, in the sense that there’s some stubbornness with U.S. inflation, the economy is in very good shape. The asset markets are doing great,” he added.
The weakness in the dollar, which tumbled more than 9% in 2025 and has dropped nearly 2.5% in January, has been largely a function of investor concern over Trump’s erratic approach to trade and international diplomacy, fears over Fed independence and huge increases in public spending.
The U.S. economy, meanwhile, is estimated to have grown by 5.4% in the fourth quarter of 2025, based on the Atlanta Fed’s GDPNow indicator, above the third quarter’s two-year high of 4.4%.
Reprieve for yen
The Japanese yen has been a major beneficiary of the drop in the dollar, surging over 1% to a three-month high of 152.10 per U.S. dollar on Tuesday. It had softened a touch on Wednesday, leaving the dollar up 0.2% at 152.43.
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.
In the very near term, investors are waiting for the Fed’s policy decision later on Wednesday. The central bank is not expected to make any change to rates until at least the middle of the year, after Chair Jerome Powell steps down.
