Dollar falls sharply as Trump says he is not concerned with the slide
Fed expected to remain on hold, focus to fall on forward guidance
Yen rallies as intervention risk remains elevated
Stocks await Fed decision and earnings, gold hits new record high
Trump says the dollar’s slide is great
The dollar plummeted against all other major currencies on Tuesday as US President Trump appeared content with the greenback’s recent steep tumble, giving sellers the green light to add to their positions.
When asked if he is concerned about the depreciation of the dollar, Trump answered “No, I think it’s great,” adding “look at the business we’re doing,” perhaps referring to the boost the dollar offers to the nation’s exports.
The US president also said that he is very close to naming his pick for the new Fed Chair, and that under the new leadership, interest rates will fall sharply. According to Fed fund futures, investors have increased their rate-cut bets somewhat, now penciling in 50bps worth of rate cuts by the end of the year, up from 45bps yesterday.
Fed decision on tap
Today, the Fed will announce its first monetary policy decision for the year and although no action is expected, investors will be on the lookout for clues and hints on how the Committee is planning to move forward. The December dot plot pointed to only a single 25bps reduction in 2026, but the median dot for the year was not a representation of a majority vote, rather than the average of three equally expressed views. Four members voted for interest rates to remain unchanged, four members chose one rate cut, and another four favored two reductions.
Thus, even the slightest dovish clue may corroborate the market’s own view and perhaps allow for more dollar selling, especially after Trump’s blessings. Having said that though, Powell’s own remarks may have a diminishing impact as he heads towards the exit. Investors will be more eager to hear the views of his successor and if indeed the new Fed chief is more dovish than Powell, the dollar may have another rough year. It fell more than 9% in 2025, while it is already down around 2.5% in January 2026.
Yen extends rally as Katayama talks intervention again
Another driver behind the dollar’s slide may have been the massive covering of short positions in the yen. The rate checks conducted by both Japan and the US on Friday have raised speculation that a coordinated intervention in the dollar/yen pair may be looming, prompting an immense selloff, with the pair falling below 153.00 yesterday.
Even after the sharp drop from Friday’s highs of around 159.25, Japan’s Finance Minister Katayama said yesterday that the government would not hesitate to act if deemed necessary, signifying that the preceding slide was not a reason for closing the intervention door. Katayama declined to comment on a sharp spike observed during the day.
The Australian dollar extended its surge and briefly surpassed the psychological mark of 0.7000 for the first time since February 2023, after Australia’s CPI data revealed that inflation accelerated in December, moving further away from the RBA’s inflation target range of 2-3%. With the headline rate now resting at 3.6%, the probability of a 25bps rate hike at the Bank’s upcoming gathering has now risen to 73%.
S&P 500 and gold climb to new all-time highs
Wall Street’s main indices closed mixed on Tuesday, with the Nasdaq gaining nearly 1% and the S&P 500 hitting a fresh record high. The Dow Jones slid 0.83%.
Today, investors of US stocks will have a very busy day, as besides the Fed decision during the trading session, they will have to digest earnings results from Microsoft, Meta Platforms, and Tesla after the closing bell. A dovish Fed could send the indices even higher and upbeat results from the mentioned tech giants could produce a positive gap tomorrow.
Gold continued to defy gravity, hitting a fresh record high today above $5,300, fueled by the tumble in the US dollar following US President Trump’s remarks that he is not concerned about the currency’s recent slide. The uncertainty surrounding the broader geopolitical landscape is also helping the safe-haven metal. Although US President Trump toned down his rhetoric about Greenland, he has pledged to impose fresh tariffs on South Korea and Canada.