The dollar’s slump on Tuesday came as selling intensified amid nonchalant comments from President Trump on the greenback's recent weakness. When asked about the sudden dollar relapse on Tuesday, Trump said it was “doing great” and should “just seek its own level.”

The dollar seemed to take a breather first thing on Wednesday, as the Federal Reserve gets set to make its first policy decision of the year in the afternoon and Trump continues to tease the announcement of his new pick for Fed Chair. 

But the prospect of another significant down-leg in the greenback may add to the Fed’s wariness about imported inflation, as dollar weakness could exaggerate the already sizeable impact on that front from tariffs.

It may also exaggerate the rebound in oil prices, and, of course, the surge in gold – which zoomed to new records above $5,300 per ounce today.

The calming of the dollar selloff was due as much to possible reactions in Europe to the euro vaulting $1.20 for the first time in four years, something that's spurred renewed speculation about another European Central Bank rate cut later in the year. 

Indeed, Austria's central bank boss Martin Kocher warned the ECB would have to react if the euro appreciated further. Perhaps the biggest concern about another sharp slide in the dollar, which has seen one-month implied currency volatility surge to its highest since July, is that it unnerves gigantic foreign holdings of US assets.

Wall Street stocks shrugged it off and pushed higher on Tuesday, likely seeing the dollar’s doldrums as another boost to overseas earnings. And optimism remained high as investors awaited megacap results from the likes of Microsoft, Meta and Tesla after the bell on Wednesday.

Treasuries are a different matter and long-term yields jumped on the dollar drop and oil pop before stalling on news of a plunge in U.S. consumer confidence to its lowest level in more than 11 years. 

Suddenly, the dollar is back on the slide, on an inkling that Washington is ready to use more than words to reverse its long-standing overvaluation in pursuit of a global trade reset. But trying to prod gigantic currency markets into seismic shifts could get very messy indeed.

A relatively placid start to the year for foreign exchanges, despite major geopolitical ructions, had many assume the dollar's precipitous early year slide in 2025 had petered out. Re-accelerating U.S. growth and its re-invigorated asset markets had drawn a line under it in many investors' eyes.

But the past week has seen Japanese authorities try to rope in U.S. counterparts to defend the ailing yen ahead of elections next month. That revived speculation Washington could take more direct action to keep the dollar down and perhaps even reverse years of broad dollar appreciation.

Even though no official selling of dollars was detected, a "quote check" from U.S. authorities on Friday - often seen as a prelude to intervention - sent the dollar/yen pairing plunging. Subsequent Japanese warnings against excessive yen weakness point back to last September's joint Washington-Tokyo statement.

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