FOREX-Dollar sinks to four-year low as Trump brushes off the decline

By Saqib Iqbal Ahmed

NEW YORK, Jan 27 (Reuters) - The U.S. dollar extended losses to sink to a four-year low against a basket of currencies on Tuesday, after President Donald Trump said the value of the dollar is "great" when asked whether he thought it had declined too much.

Trump made the comment to reporters in Iowa ahead of a speech expected to center on the economy, as he seeks to rally his stalwart rural supporters in a state that hosts key congressional races in November.

The comment weighed on the dollar, which had come under pressure in recent sessions as traders braced for a possible coordinated currency intervention by U.S. and Japanese authorities.

Trump's remark signals to the market that the U.S. would prefer a weaker dollar, said Marc Chandler, chief market strategist at Bannockburn Capital Markets.

"The market is happy to give it to them," he said.

The dollar's recent weakness stems from several factors including Trump's policymaking and concerns about Federal Reserve independence, analysts said.

In addition, disagreement between Republicans and Democrats over funding for the Department of Homeland Security after the fatal shooting of a second U.S. citizen by federal immigration officers in Minnesota has raised concerns of another U.S. government shutdown.

Trump accused South Korea's legislature of "not living up" to its trade deal with Washington, and said late on Monday he would increase tariffs on imports from Asia's fourth-biggest economy into the U.S. such as autos, lumber and pharmaceuticals to 25%.

Trump has also in recent days said he would impose a 100% tariff on Canada if it follows through on a trade deal with China.

"We've already had some very sizable moves in the last few days... (Trump's comment on the dollar) put gasoline on an already existing fire," Bannockburn's Chandler said.

'TARIFF MAN' SHOWS NO SIGN OF REGRETS

On Tuesday the Korean won KRW= strengthened 1% against the dollar to 1,431.85 per dollar.

"With the 'tariff man' showing no sign of repentance and the U.S. government headed into another shutdown, economic policy uncertainty is soaring once again, leading to an intensification in the 'Sell America' trade that has dominated markets for the better part of a year," said Karl Schamotta, chief market strategist with payments company Corpay in Toronto.

"Positive fundamentals should eventually reassert themselves, but for now, no one is willing to catch the falling chainsaw that is the U.S. dollar," he said.

Against a basket of currencies, the dollar fell 1.4% to 95.77, its lowest since February 2022.

Investors will watch the Fed's two-day meeting this week for clues to the path of monetary policy.

"The big risk, as we see it, is not in the rate decision. We're pretty confident that the Fed is going to hold rates unchanged. But Trump is not going to like that," said Nick Rees, head of macro research at Monex.

The president has been urging the Federal Reserve to cut rates.

Trump could announce his candidate for Federal Reserve Chair Jerome Powell's successor soon after the rate decision, especially if the president does not support the central bank's decision, Rees said.

YEN INTERVENTION WATCH

Much of the foreign exchange market's focus has been on the yen, which rallied by as much as 4% over the past two sessions on talk of the U.S. and Japan conducting rate checks - often seen as a precursor to official intervention.

That helped the yen slip below 153 to the dollar. It was last trading at 152.23.

"While there are several potential culprits for the dollar’s drop, the main driver is the fallout from reports that the US Treasury is considering direct currency intervention," Jonas Goltermann, deputy chief markets economist at Capital Economics, said in a note.

While there has been no confirmation of rate checks from officials in Japan or the U.S., a person familiar with the matter told Reuters that the New York Federal Reserve had checked dollar/yen rates with dealers on Friday.

Japanese authorities said on Monday they have been in close coordination with the U.S. on foreign exchange.

The euro EUR= rose 1.4% to $1.20375, trading above $1.20 for the first time since June 2021. Similarly, sterling GBP= added 1.2% to $1.3844, its strongest since September 2021.