The US dollar edged slightly higher on Tuesday but struggled to gain strong momentum, as traders remained on alert for the possibility of coordinated intervention in currency markets by US and Japanese authorities, while awaiting the Federal Reserve’s interest rate decision on Wednesday.

Much of the recent focus in foreign exchange markets has been on the Japanese yen, which has risen by as much as 3% over the past two sessions amid talk that the United States and Japan have been conducting so-called “rate checks” — a practice often seen as a precursor to official market intervention.

That helped stabilize the yen in a range of 153 to 154 per dollar, well away from the near-34-year low of 159.23 hit on Friday. In latest trading, the yen stood at 154.75 per dollar, with the dollar up about 0.4% against the Japanese currency.

Parisha Saimbi, Asia emerging markets and local markets FX strategist at BNP Paribas, said: “The fact that the signals are coming from the US suggests, or adds risk to the market, that there may be multiple parties willing to intervene, which is different from what we have seen in the past.”

She added: “And that, in my view, explains why the moves have not been limited to dollar/yen alone, but instead we have seen broader dollar movement.”

While there has been no official confirmation from Japanese or US authorities that rate checks have taken place, a source familiar with the matter told Reuters that the New York Federal Reserve asked dealers about dollar/yen rates on Friday.

In the same context, senior Japanese officials said on Monday that they are in close coordination with the United States on foreign exchange markets.

The possibility of intervention has discouraged investors from pushing the yen significantly weaker, despite concerns over Japan’s public finances. Analysts also noted that the bar for coordinated intervention remains high.

Money market data from the Bank of Japan showed that Friday’s sharp rise in the yen against the dollar was unlikely to have been driven by direct Japanese intervention.

Dollar remains under pressure

The dollar continues to face heavy pressure from a combination of factors, including Washington’s preference for a weaker currency and uncertainty surrounding the policies of US President Donald Trump.

Nick Rees, head of macro research at Monex, said these factors could re-emerge on Wednesday following the Fed’s interest rate decision. He said: “We have a Federal Reserve meeting tomorrow, and we think the market will remain extremely cautious ahead of this event. The biggest risk, in our view, is not the rate decision itself. We are fairly confident the Fed will keep rates unchanged. But Trump will not be happy with that.”

Rees added that Trump could soon announce his nominee to succeed Federal Reserve Chair Jerome Powell after the rate decision, particularly if the president does not support the central bank’s stance.

“We think that would introduce a great deal of volatility into the dollar,” he said.

Criminal investigations being pursued by the Trump administration into Jerome Powell, as well as an advanced attempt to remove Federal Reserve Governor Lisa Cook, are also among the issues being closely watched during the two-day policy meeting that begins on Tuesday.

The dollar rose for the first time in four days against a basket of currencies, gaining 0.2% to 97.27. Even so, it remains down about 1% since the start of the year and had touched a four-month low of 96.808 on Monday.

Meanwhile, the euro slipped 0.2% to $1.1855, not far from the four-month peak of $1.19075 reached on Monday. Sterling fell 0.07% to $1.3668 but stayed close to a four-month high of $1.37125 seen in the previous session.

The Australian dollar edged slightly lower but continued to trade near a 16-month high of $0.6941, which it reached on Monday.

Gold prices rose in European trading on Tuesday, extending gains for a seventh consecutive session and hovering near record highs, as strong demand for the metal as a safe haven persisted amid President Donald Trump’s continued threats to impose higher tariffs on several major economies.

Those gains were capped by a rebound in the US dollar, ahead of the start of the first monetary policy meeting of the Federal Reserve this year, which is widely expected to result in no change to US interest rates.

Price Overview

• Gold prices today: Gold rose by 1.8% to $5,100.84, from an opening level of $5,010.50, while the session low stood at $5,010.50.

• At settlement on Monday, the precious metal gained around 0.5%, marking a sixth straight daily advance and recording a fresh all-time high at $5,111.01 per ounce, after breaching the psychological $5,000-per-ounce threshold for the first time in history.

Trump’s tariff threats

On Monday, Donald Trump announced plans to raise tariffs to 25% on car, timber, and pharmaceutical imports from South Korea, sharply criticizing Seoul over its failure to reach a trade agreement with Washington.

This escalation followed an earlier threat to impose tariffs on Canada, particularly after Canadian Prime Minister Mark Carney visited China earlier this month, although relations between the two countries have improved noticeably in recent weeks.

US dollar

The US dollar index rose by 0.25% on Tuesday, beginning to recover from a four-month low at 96.81 points, and is on track for its first gain in four sessions, reflecting a rebound in the US currency against a basket of global currencies.

Beyond bargain buying at low levels, the dollar’s recovery comes ahead of the start of the Federal Reserve’s first monetary policy meeting of the year.

Federal Reserve

The Federal Reserve’s policy meeting begins later today, with decisions due on Wednesday. Expectations remain firmly anchored around keeping interest rates unchanged at 3.75%, the lowest level in three years.

Carol Kong, currency strategist at Commonwealth Bank of Australia, said markets are likely to focus more on questions surrounding the independence of the Federal Reserve rather than on interest rate expectations.

She added that if Chair Jerome Powell were to step down as a governor after his term as Fed chair ends in May, it could reinforce the perception that he is yielding to political pressure, potentially intensifying concerns over the Fed’s independence, which would pose a risk to the dollar.

US interest rates

• According to the CME FedWatch Tool, market pricing shows a 97% probability that US interest rates will remain unchanged at the January 2026 meeting, while the probability of a 25-basis-point cut stands at 3%.

• Investors are currently pricing in two US rate cuts over the course of the coming year, while the Federal Reserve’s own projections point to a single 25-basis-point cut.

Gold outlook

Tim Waterer, chief market analyst at KCM Trade, said Trump’s disruptive policy approach this year has been supportive of precious metals as safe havens. He noted that threats of higher tariffs on South Korea and Canada are sufficient to keep gold well bid as a defensive asset.

Waterer added that intervention by US and Japanese officials to calm the yen weighed on the dollar, providing a strong boost to gold prices. He also pointed out that further pressure on the dollar from the prospect of a US government shutdown and Trump’s erratic policies has lowered the dollar-denominated gold price for overseas buyers.

SPDR holdings

Gold holdings at SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, were unchanged on Monday, keeping total holdings at 1,086.53 metric tons, the highest level since May 3, 2022.

The euro retreated in European trading on Tuesday against a basket of global currencies, giving up its highest level in four months versus the US dollar and heading toward its first loss in four days. The move came amid active correction and profit-taking operations, alongside a rebound in the US currency ahead of the Federal Reserve’s policy meeting.

With easing inflationary pressures on policymakers at the European Central Bank, expectations for at least one interest rate cut this year have regained momentum. Markets are now awaiting further economic data from the euro area to reprice these expectations.

Price overview

Euro exchange rate today: the euro declined against the dollar by 0.1% to 1.1870, from the day’s opening level of 1.1881, after touching a high of 1.1899.

The euro ended Monday’s session up by 0.45% against the dollar, marking a third consecutive daily gain and reaching a four-month high at 1.1907, driven by negative pressure on US assets.

US dollar

The US dollar index rose by more than 0.1% on Tuesday, beginning to recover from a four-month low at 96.81 points, on track for its first gain in four sessions, reflecting a rebound in the US currency against a basket of global currencies.

Beyond bargain buying from low levels, the dollar’s recovery comes ahead of the start of the first monetary policy meeting of the Federal Reserve this year.

The meeting is widely expected to result in interest rates being left unchanged, with an emphasis on the need for more time to assess economic developments before taking any new policy steps.

Carol Kong, currency strategist at Commonwealth Bank of Australia, said markets are likely to focus more on questions surrounding the Federal Reserve’s independence rather than interest rate expectations.

Kong added that if Powell were to choose to step down from his role as a governor after his term as Fed chair ends in May, this could reinforce the perception that he is yielding to political pressure, potentially heightening concerns over the erosion of the Fed’s independence, which would pose a risk to the dollar.

European interest rates

Recent data from Europe showed a slowdown in headline inflation during December, underscoring easing inflationary pressures on the European Central Bank.

Money markets currently price the probability of a 25-basis-point rate cut by the ECB in February at around 25%.

Traders have revised their expectations from rates remaining unchanged throughout the year to at least one 25-basis-point cut.

To reprice these expectations further, investors are awaiting additional euro area data on inflation, unemployment, and wages.

The Japanese yen retreated in Asian trading on Tuesday against a basket of major and minor currencies, giving up its highest level in two months versus the US dollar and heading toward its first loss in three days. The move came amid active correction and profit-taking operations, alongside fading concerns over potential intervention by the Bank of Japan in the foreign exchange market to support the local currency.

Following last week’s Bank of Japan meeting, markets continue to rule out a rate hike at the central bank’s upcoming March meeting, as policymakers need more time to assess the impact of the most recent monetary tightening implemented in December on economic activity and prices.

Price overview

The Japanese yen exchange rate today: the US dollar rose against the yen by 0.3% to 154.64, from the day’s opening level of 154.14, with the lowest level recorded at 154.08.

The yen ended Monday’s session up by more than 1.0% against the dollar, marking a second consecutive daily gain and posting a two-month high at 153.30 yen, driven by expectations of coordinated intervention by US and Japanese authorities.

US dollar

The US dollar index rose by more than 0.1% on Tuesday, starting to recover from a four-month low at 96.81 points, on track for its first gain in four sessions, reflecting a rebound in the US currency against a basket of global currencies.

Beyond bargain buying from low levels, the dollar’s recovery comes ahead of the start of the first monetary policy meeting of the US Federal Reserve this year.

The meeting is widely expected to result in interest rates being left unchanged, with an emphasis on the need for more time to assess economic developments before taking any new policy steps.

Bank of Japan intervention

Money market data released by the Bank of Japan indicated that the sharp rise in the yen against the dollar on Friday was unlikely to have been caused by official Japanese intervention.

A source told Reuters that the New York Federal Reserve reviewed dollar-yen exchange rates with market participants on Friday, while senior Japanese officials said on Monday that they are in close coordination with the United States regarding foreign exchange matters.

Japanese Finance Minister Satsuki Katayama declined to comment on the exchange rate review, while currency diplomat Atsuki Mimura said the government would maintain close coordination with the United States on the foreign exchange market and would take appropriate action.

Views and analysis

Dominic Bunning, head of G10 FX strategy at Nomura, said it is clear that if both Japan’s Ministry of Finance and the US Treasury are seeking to curb the rise in the dollar against the yen, this would be a very influential factor.

Moh Siong Sim, FX strategist at OCBC, said this is not the end of the story. He added that while the market has become slightly more cautious, if nothing happens after some time, there will likely be renewed attempts to test how resolute the Japanese authorities are. At that stage, actual intervention could occur to send a stronger and clearer signal.

Japanese interest rates

Market pricing for a quarter-point interest rate hike by the Bank of Japan at the March meeting remains below 20%.

To reprice these expectations, investors are awaiting further data on inflation, unemployment, and wages in Japan.