The dollar is at a four-month low. What is putting pressure on the currency?

The dollar on January 26 on the world currency markets fell to its lowest level in four months. The U.S. dollar index, which tracks its dynamics against six world currencies, fell by 0.6% to 97.02.

One of the reasons for the decline was a sharp strengthening of the yen, which, according to traders, may indicate that Tokyo and Washington are preparing for coordinated action to support the Japanese currency, writes Barron's. At the same time, the dollar is pressured by the trend "sell American", which was the reaction of foreign investors to the policy of President Donald Trump, the growth of U.S. government debt and expectations that the current head of the Fed Jerome Powell this spring will be replaced by a softer in his views chairman, the publication writes.

Both the Federal Reserve Bank of New York and the Japanese Ministry of Finance have conducted so-called rate check calls - calls to trading desks requesting current quotes for the dollar/yen pair. Such actions are often seen as a precursor to direct currency intervention, Barron's notes. The possibility of intervention was reiterated on Sunday by Japanese Prime Minister Sanae Takaichi, who said on Japanese television that her government would "take necessary steps against speculative or excessively abnormal market movements" to support the yen.

The yen has been declining sharply in recent weeks and approached an all-time low of 161.95 per dollar. However, on Monday, the yen rose nearly 2.9% from the previous close to 153.78 per dollar, a two-month high.

"The prospect of bilateral intervention by Japan and the US naturally looks much more compelling than passive action by Tokyo alone," ING head of macroeconomic research Chris Turner told Barron's. According to him, the weakening yen, along with the sale of Japanese government bonds, also contributes to the growth of yields on U.S. treasuries.

The dollar is also being pressured by the gaining momentum of the "Sell American" trend, which was investors' reaction to Trump's policies, according to Barron's. The president has threatened to impose 100 percent duties on imports from Canada amid talks between Ottawa and Beijing, indicating high uncertainty in geopolitics even after the recent détente with Europe, the publication notes.

The likelihood of a U.S. government shutdown also rose sharply after Immigration and Customs Enforcement officers shot and killed a man in Minnesota over the weekend, Barron's said. It is the second such fatal shooting in the state in the past two months, which has led to a standoff in Congress over funding for the Department of Homeland Security.

This article was AI-translated and verified by a human editor