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

• The dollar fell to its lowest level since March 2022 amid US policy risks
• Euro, pound, yen, and Swiss franc surged to multi-year highs against the dollar
• Fed rate-checking and possible intervention fueled further dollar declines

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The dollar slid to its weakest level in nearly four years as US policy risks and a resurgent yen weigh against the world’s reserve currency.

The Bloomberg Dollar Spot Index fell as much as 0.7% to the lowest since March 2022. It’s the fourth-straight day of losses, setting up the dollar for its worst stretch since President Donald Trump unveiled his program of universal tariffs last April.

The weakness reflects investor caution amid unpredictable Washington policymaking, including 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 declines helped to fuel gains across global currency markets. The euro soared to its strongest level since June 2021, and the British pound jumped to its highest since October of that year. The yen was also stronger after Japanese officials offered further hints that they could intervene in the market.

That followed signs of US support to boost the yen, reopening speculation around the potential for coordinated currency intervention to guide the greenback lower against key trading partners. Reports from traders Friday indicated 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. Japanese Finance Minister Satsuki Katayama, speaking after a Group-of-Seven meeting Tuesday, affirmed that the government will take appropriate action against currency moves in close coordination with US authorities if needed.

The drop in the dollar also buoyed the euro, which hit $1.1972 earlier, its strongest level since 2021. The pound rose 0.8% to $1.3791, also the highest since 2021, while the Swiss franc gained 1.4% to 0.7660 per dollar and continues to trade at its strongest mark since 2015.

An index of emerging-market currencies extended gains for a fourth day, with 16 out of 22 developing FX tracked by Bloomberg climbing against the greenback. The gauge, which incorporates interest returns, is trading at the highest level on record as the dollar retreats.

The dollar’s decline also comes against the backdrop of resilient global growth expectations, reflected in rising equity market prices, that could pressure investors to seek higher returns outside of the US.

“Washington’s protectionist pivot and diminished security commitments are spurring other nations to boost defense expenditure and sharpen their competitive focus, compressing the growth and interest rate differentials that previously favored the greenback,” Karl Schamotta, chief market strategist at Corpay, wrote Tuesday.

Dollar traders are now paying the most on record to hedge against a deeper selloff 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. Bullish expectations on non-dollar currencies have also reached multi-month highs, near or on par with levels seen in the aftermath of last year’s Liberation Day tariffs.

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 selloff 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 to many other major central banks where forecasts are for no change or even rate hikes.

Trump’s pending choice for the next Fed chair has also buffeted the greenback, with some 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.”