A report from MUFG highlights how uncertainty over US tariff policies and possible joint foreign exchange actions by the US and Japan are affecting the Dollar’s value. This uncertainty has led to a weaker Dollar, pushing investors toward real assets like Gold, while local elements influence Asian currencies differently. The report also mentions that tariff increases might be postponed due to the upcoming US mid-term elections. The confusion around tariffs on countries such as South Korea, Canada, and the EU is leading to Dollar selling. Though coordinated intervention isn’t expected right now, history shows that Japanese authorities have successfully intervened in the past during significant shifts or alongside other authorities.

Dollar Weakness and Investment Opportunities

Growing uncertainty about US tariff policies is driving Dollar weakness as we enter February. The Dollar Index (DXY) has dropped from over 105 in late 2025 to around 102.50 this month. Traders might want to use put options on Dollar-tracking ETFs to take advantage of this downward trend in the short term. This situation is creating a rush for real assets like gold. Gold prices have soared in recent weeks, rising more than 7% since November and surpassing $2,400 an ounce as investors seek safe options. Buying call options on gold futures or related ETFs could provide leveraged exposure to this ongoing trend. The possibility of coordinated foreign exchange intervention by the US and Japanese authorities is also significant, especially for the yen. In 2024 and 2025, Japan intervened in the market several times when the dollar-yen rate was too high, and current levels are again under scrutiny. Holding long USD/JPY positions is risky, so it’s wise to protect them with out-of-the-money puts.

Market Anxiety and Strategic Considerations

While tariff discussions create market anxiety, we expect significant policy changes to take time before the US mid-term elections this November. The administration will likely avoid major economic disruptions, meaning market volatility will stem more from talk than from actions. This presents an opportunity for traders to use volatility-based strategies, like straddles on the Mexican Peso or Canadian Dollar, which react strongly to US trade news. Create your live VT Markets account and start trading now.

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