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The British pound surged to $1.3790 amidst a notable dollar selloff.
A dollar firesale helped propel the pound to dollar exchange rate to its highest level since October 2021.
"The Pound is on a tear again vs USD - testing 1.38. Now up an extraordinary 29% on its Mini Budget lows of September 2022. Whilst largely a Dollar softening story (comparable to 1971 & 2017), the trade-weighted Sterling index is also up 16% over the same period," says Simon French, Head of Research at Panmure Liberum.
The dollar's move is detached from U.S. bond market developments, which tells us the dollar's move is not linked to domestic data.
"Last week's combination of (Greenland-driven) uncertainty on U.S. policy and the risk of (even potentially coordinated Japan-US) USD/JPY interventions, made USD selling again the by default action on global FX markets," says a note from KBC Bank released Tuesday.
The big dollar move began last Friday when it was revealed that Japanese and U.S. authorities could coordinate to bolster the yen and weaken the dollar in a trans-Pacific currency pact.
"Trading desks are on intervention watch after the New York Federal Reserve reportedly conducted 'rate checks' for the Treasury on Friday," says Karl Schamotta, FX strategist at Corpay.
More broadly, the signal this sends is that the U.S. administration is now intent on actively pursuing a weak dollar policy in order to bolster the country's trading position, given a weaker currency will help U.S. exporters.
"The US being prepared to sell its currency to ‘help’ Japan stabilizing the yen suggests that the US administration for now has no intention to block this part of the US debasement trade," says KBC.
Schamotta says global FX could be in for a period of extreme volatility as intervention joins tariffs as a routine policy.