Dollar sinks to lowest level in four years as US risks grow

A gauge of the dollar slid to its weakest level in nearly four years as a resurgent yen adds to headwinds for the US currency.

The Bloomberg Dollar Spot Index fell as much as 0.4% to the lowest since March 2022. The world’s primary reserve currency fell for a fourth straight day, and is coming off its worst week since May.

The weakness reflects investor caution following a bout of unpredictable Washington policymaking, including President Donald Trump’s threats to take over Greenland. Longer-term, risks around Federal Reserve independence, a growing budget deficit, worries about fiscal profligacy and widening political polarization have all pulled the dollar lower.

“Structural drags on the dollar — fading confidence in US trade and security policy, politicization of the Fed, and worsening US fiscal credibility — could outweigh the more neutral cyclical dollar backdrop and pull the dollar lower,” said Elias Haddad, global head of markets strategy at Brown Brothers Harriman & Co.

The latest decline also follows signs of US support to boost the beleaguered yen, reopening speculation around the potential for coordinated currency intervention to guide the greenback lower against key trading partners. Reports from traders Friday indicated that the Federal Reserve Bank of New York contacted financial institutions to check on the yen’s exchange rate — a preliminary step that’s often taken before interventions.

Friday’s rate-checking of the dollar-yen rate by Fed officials “drove down the US dollar further,” George Catrambone, head of fixed income at DWS Americas, told Bloomberg Radio on Tuesday.

The yen rallied some 0.7% to 153.03 Tuesday in New York. The yen this month approached 160 per dollar, its weakest level since 2024, and has since rebounded on the speculation.

The drop in the dollar also buoyed the euro, which hit $1.1939 earlier, its strongest level since 2021. The pound rose 0.5% to $1.3748, its highest since July.

Dollar traders are now paying the most on record to hedge against a deeper sell-off in the US currency. The premium for short-dated options that profit from a weaker US currency has widened to the highest level since Bloomberg began compiling the data in 2011.

Heavy volumes, meanwhile, underscore the extent to which the dollar outlook has soured. On Monday, trading volumes through the Depository Trust & Clearing Corporation hit the second highest on record, surpassed only by the sell-off on April 3, 2025.

“We see the risk premium on the dollar building up again,” a Barclays team including Mitul Kotecha and Lhamsuren Sharavdemberel wrote Tuesday, citing the currency’s underperformance following Trump’s Greenland threats.

The recent data from the US point to a solid economic performance, pushing traders to expect the Fed to keep rates unchanged Wednesday. For the rest of the year, the markets price in nearly two quarter-point cuts, which is a contrast with many other major central banks where forecasts are for no change or even chances of a rate hike.

Still, Trump’s pending choice for the next Fed chair has also buffeted the greenback, since speculation is that the next head will be more biased to lower borrowing costs. So too has the risk of a government shutdown as Democrats vow to block a spending package in Congress unless Republicans strip funding for the Department of Homeland Security.

“With a partial government shutdown now possible, there is still plenty to worry dollar bulls,” said Kit Juckes, head of foreign-exchange strategy at Societe Generale. “US growth is still likely to determine how much the Fed eases, and therefore, whether the dollar can weaken significantly from here.”