The US dollar strengthened against a broad range of currencies, rebounding from a four-year low reached in the previous session, after US Treasury Secretary Scott Bessent reiterated that the United States continues to favour a strong dollar.
Speaking on Wednesday, Mr Bessent said a strong dollar policy is rooted in maintaining sound economic fundamentals. He also dismissed suggestions that Washington had been intervening in foreign exchange markets to support the Japanese yen.
Following his comments, the dollar index, which tracks the currency against a basket of major peers, rose by around 0.5%. This came after the index slipped to its weakest level since early 2022 earlier in the week. The greenback remains under pressure overall, having fallen nearly 2% so far this year after a sharp decline in 2025.
Market sentiment had been rattled after US President Donald Trump described the dollar as being in good shape when questioned about its recent slide. Traders interpreted those remarks as a sign that the administration was relaxed about further weakness, leading to heavier selling ahead of a key policy decision by the Federal Reserve.
Market analysts said the subsequent rebound was a predictable response to Mr Bessent’s forceful defence of the currency. Michael Brown of Pepperstone noted that the comments challenged market assumptions that the administration was actively seeking a softer dollar or attempting to influence movements in the yen.
Even so, he added that broader investor behaviour still reflects caution towards US assets, with concerns persisting around trade policy volatility and fiscal direction.
The dollar’s recent weakness has been driven by several overlapping factors, including expectations of further interest rate cuts by the Federal Reserve, uncertainty around tariffs, concerns about political pressure on monetary policy, and rising government deficits. Together, these issues have weighed on confidence in the long-term stability of the US economic outlook.
Joel Kruger of LMAX Group said the latest currency movements point to a wider reassessment of global economic prospects. He added that breaks through key technical levels in major currency pairs have accelerated market flows and reinforced existing trends.
Earlier this week, the euro rose above $1.20 for the first time since 2021, while sterling reached multi-year highs. The yen also posted its strongest monthly performance against the dollar in several years, helped by speculation about coordinated support from Japanese and US officials.
Euro strength raises policy questions
While a weaker dollar has eased pressure on Japanese authorities, it has prompted concern elsewhere. Officials at the European Central Bank have signalled that a stronger euro could influence future monetary policy decisions.
Austrian central bank governor Martin Kocher suggested that further interest rate reductions might need to be considered if euro strength begins to dampen inflation. Separately, Bank of France governor Bank of France head François Villeroy de Galhau said policymakers are closely watching the currency’s appreciation and its impact on price pressures.
The euro later eased back from recent highs, though it remains on course for a solid monthly gain.
Currency strategists at Société Générale noted that while both the US and Japan share an interest in avoiding excessive yen weakness, the euro now appears relatively strong given subdued inflation in the eurozone.
By contrast, the US economy continues to show resilience. Growth in the final quarter of 2025 is estimated at 5.4%, according to the Atlanta Fed GDPNow model, underlining the tension between strong economic data and a currency that remains under pressure.
Meanwhile, the yen has given back some recent gains, though it continues to benefit from lingering doubts over US policy direction and the effectiveness of any direct market intervention, particularly ahead of Japan’s upcoming general election.
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