The US dollar steadied on Wednesday but remained poised for its largest weekly drop since April, following remarks from President Donald Trump dismissing concerns over the currency’s recent slide. The weakness of the dollar has raised alarm among European central bankers, even as other major currencies and gold have surged in recent weeks.
The euro topped $1.20 for the first time since 2021, while the British pound reached a four-and-a-half-year high. The Japanese yen is on track for its strongest monthly performance against the dollar since April, amid ongoing speculation about possible joint intervention by Japanese and US authorities to support the currency.
The dollar index, which measures the currency’s value against six major peers, rose 0.3% to 96.216, but remained near four-year lows after losing nearly 2.7% since last Wednesday. Analysts said traders interpreted Trump’s comments on Tuesday, in which he described the dollar as “great,” as a signal to increase selling pressure. Kyle Rodda, senior market analyst at Capital.com, said the situation reflects “a crisis of confidence in the US dollar” and warned the weakness could continue if US policy remains erratic.
European officials have voiced concern over the euro’s strength. Austrian central bank governor Martin Kocher told the Financial Times that the European Central Bank may need to consider another rate cut if the strong euro threatens the outlook for inflation. Bank of France Governor François Villeroy de Galhau said policymakers are “closely monitoring the appreciation of the euro and its potential impact on lower inflation.”
The euro fell by 0.63% to a session low of $1.19623 before recovering slightly to $1.19715, but remains set for a 2% gain this month. Analysts noted that while the euro is rising, the US economy is performing well. Societe Generale head of FX strategy Kit Juckes said, “The odd man out is the dollar… the economy is in very good shape, and asset markets are doing great.”
The dollar has tumbled more than 9% in 2025 and has dropped nearly 2.5% in January alone, driven by investor concerns over Trump’s trade and foreign policies, questions about Federal Reserve independence, and rising public spending. Despite the currency’s weakness, the US economy showed strong growth in the fourth quarter of 2025, with the Atlanta Fed’s GDPNow indicator estimating 5.4% expansion, up from 4.4% in the third quarter.
The Japanese yen has been a key beneficiary, climbing over 1% to 152.10 per dollar yesterday before easing slightly to 152.43. Investors remain cautious about the impact of potential intervention ahead of Japan’s snap election on February 8, as Prime Minister Sanae Takaichi emphasizes expanded stimulus measures in her campaign.
The dollar’s recent slide underscores growing market unease over US policy and its global economic impact, while Europe and Asia navigate the effects of a stronger euro and yen on trade and inflation.
