The U.S. dollar index retreated to its weakest level in nearly four years, as a recovering Japanese yen added further pressure on the American currency.

The Bloomberg Dollar Spot Index fell by as much as 0.4% to its lowest level since March 2022, extending its losses for a fourth consecutive session. This decline follows the dollar’s worst weekly performance since May.

The latest wave of weakness came after indications of U.S. support for strengthening the struggling yen, reigniting debate over the possibility of coordinated intervention in foreign-exchange markets to push the dollar lower against major trading partners.

Markets are on alert for potential intervention to support the yen following warnings from Takayoshi.

Multiple Factors Weigh on the Dollar

The dollar’s weakness also reflects investor caution following a series of unexpected policy moves in Washington, including U.S. President Donald Trump’s threats to take control of Greenland. Over the longer term, concerns surrounding the Federal Reserve’s independence, widening budget deficits, fears of fiscal profligacy, and deepening political polarization have all contributed to pressure on the dollar.

Kit Juckes, Head of Foreign Exchange Strategy at Société Générale, said: “With the prospect of a partial government shutdown now, there is still plenty to worry dollar bulls.” He added: “U.S. growth is likely to remain the key determinant of how much the Federal Reserve eases monetary policy, and therefore whether the dollar can weaken meaningfully from current levels.”

Despite Trump Pressure, the Fed Leads Global Peers in Holding Rates Steady

Recent U.S. data point to resilient economic performance, prompting traders to expect the Federal Reserve to keep interest rates unchanged this week. Over the remainder of the year, markets are pricing in nearly two quarter-percentage-point rate cuts—a stark contrast to many other major central banks, where expectations lean toward no policy changes or even the possibility of rate hikes.

Further weighing on the greenback is Trump’s pledge to soon announce a successor to Federal Reserve Chair Jerome Powell, with expectations that the new appointee would be more inclined to lower borrowing costs.