LONDON, Jan 26 (Reuters) – The dollar is under criticism again in the first turbulent weeks of 2026, as a growing number of factors, including Washington’s desire for a weaker currency, prompt investors to reconsider their optimistic assumptions about a period of stability for the dollar.

The dollar on Monday was heading for its biggest three-day drop against a basket of major currencies since last April, when President Donald Trump’s “Emancipation Day” tariffs caused a steep decline in U.S. assets.

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In his first year in office, Trump’s erratic approach to trade and international diplomacy, attacks on the Federal Reserve that undermined its independence, and massive increases in public spending caused the dollar to fall by more than 9%, its worst annual level since 2017.

So far this year, the dollar has once again underperformed other major currencies such as the euro, pound and Swiss franc.

whirlwind rate of change

“There are a lot of factors coming together,” said Seema Shah, chief global strategist at Principal Asset Management, which manages more than $600 billion in assets.

“I don’t think this is a ‘sell America’ trade, but the fundamentals are aligning and it’s happening faster than expected.”

Just this month, President Trump threatened to seize control of Greenland, imposed additional tariffs on European allies over the issue, moved to bring criminal charges against Federal Reserve Chairman Jerome Powell, and oversaw an operation to seize control of Venezuela’s president. On Saturday, it threatened Canada with a de facto trade embargo.

Although he has backed off threats over Greenland and European tariffs and markets have shaken off the Venezuela attack, the backdrop is tense.

Measures of market volatility remain volatile, and bond market sentiment remains fragile. In particular, this is because the active sale of Japanese government bonds could have a ripple effect on government bonds. Meanwhile, gold’s relentless streak of new records is a sign that investors are seeking another safe haven.

“The threat of a government shutdown adds to the tailwinds that have been pushing the dollar down and provides another reason for those considering investing in the U.S. or hedging dollar risk,” said Mark Spindel, chief investment officer at Potomac River Capital in Washington.

Additionally, while other major central banks have paused or are likely to raise rates, the Fed is still expected to cut rates at least twice this year.

This alone could make the dollar less attractive to investors, who may choose to park their money where loan rates are rising.

Mr. Powell resisted pressure from President Trump to cut rates more quickly and will resign in May. Online betting markets currently believe there is a 50% chance that BlackRock’s head of corporate bonds, Rick Rieder, who like the president is a supporter of low interest rates, will succeed him. That’s up from less than 10% a week ago, adding to the dollar’s weakness.

It’s time to move on

“Asset managers are keen to continue diversifying away from the US at the last minute,” said Chris Scicluna, an economist at Daiwa Capital Markets.“It’s clear that many asset managers were too focused on the US market, or felt they were overweight.”

President Trump has repeatedly said tariffs are necessary to address trade imbalances, focusing on the currencies of Asian countries with which the United States has large trade deficits.

On Friday, the Bank of Japan was suspected of conducting a series of checks on yen interest rates in cooperation with the New York Fed. This could be a precursor to the first joint U.S.-Japan intervention in 15 years to boost Japan’s currency. The New York Fed acted as the U.S. Treasury’s fiscal agent, sources said.

Despite the yen’s subsequent appreciation, Japan’s currency still depreciated by about 13% against the dollar last year.

Trade-weighted dollar exchange rate remains steady

But on a trade-weighted basis, the dollar has depreciated by only about 5.3% over the past 12 months, based on an index calculated by the Bank for International Settlements.

Dominic Banning, Nomura’s head of G10 currency strategy, said investors were becoming increasingly concerned about dollar exposure and that last year’s decline was due to cyclical factors such as slower growth.

“The difference for me[this year]is that the policies that I think the United States is putting in place are much more adversarial and geopolitical as opposed to economic policies with tariffs,” he said.

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