The U.S. dollar traded close to recent lows on Wednesday after U.S. President Donald Trump renewed his rhetoric over Greenland ahead of his highly anticipated speech at the World Economic Forum.
At 03:55 ET (08:55 GMT), the Dollar Index — which measures the greenback against a basket of six major currencies — slipped 0.1% to 98.400. The move extended a sharp 0.8% decline recorded overnight, marking the dollar’s weakest single-day performance in roughly six weeks.
Dollar remains under pressure
The dollar has stayed on the defensive after Trump reiterated that the United States must secure control of Greenland, a semi-autonomous Danish territory, citing national security concerns.
“I think we’ll work something out where NATO will be very happy and we’ll be very happy,” Trump said, adding that Greenland is critical for U.S. security interests. When pressed on how far he would go to acquire the territory, Trump replied, “You’ll find out.”
Trump is expected to expand on the issue during his address in Davos later in the day, keeping investors cautious. Analysts at ING noted that Greenland is likely to dominate market attention, although face-to-face talks with European leaders could open the door to de-escalation, potentially offering some support to the dollar.
Pound supported by UK inflation data
In Europe, the British pound strengthened modestly, with GBP/USD rising 0.1% to 1.3442 after data showed UK consumer inflation increased more than expected in December. The higher reading adds complexity for policymakers at the Bank of England ahead of their next meeting in early February.
Annual CPI climbed to 3.4% from 3.2% in November, exceeding forecasts of 3.3%. Despite weak economic growth, inflation in Britain remains the highest among the G7 economies. However, price pressures are expected to ease in coming months as last year’s increases in utility costs and regulated prices fall out of annual comparisons.
The Bank of England cut interest rates by 25 basis points in December but is widely expected to keep policy unchanged at its next meeting.
Euro dips, yen stabilizes after bond rout
The euro edged lower, with EUR/USD down 0.1% to 1.1709, retreating from three-week highs reached in the previous session as geopolitical uncertainty surrounding Greenland remained in focus. ING analysts said that unless bond market volatility spikes again, the euro is likely to trade below 1.170 amid seasonally stronger demand for the dollar.
In Asia, the Japanese yen steadied following sharp volatility earlier in the week. USD/JPY slipped 0.2% to 157.84 as markets continued to digest a heavy selloff in Japanese government bonds.
Yields on long-dated bonds, including the 40-year JGB, surged to record highs as investors grew increasingly concerned about Japan’s fiscal outlook under new Prime Minister Sanae Takaichi. Her pro-spending agenda, which includes proposals to suspend the national sales tax on food, has raised fears over widening deficits and long-term debt sustainability.
Adding to uncertainty, Takaichi called a snap election for February 8 in a bid to secure a stronger mandate for her economic plans.
Elsewhere in currency markets, USD/CNY rose 0.1% to 6.9653 after the People’s Bank of China kept its loan prime rate unchanged earlier in the week. The Australian dollar advanced 0.3% to 0.6752, while the New Zealand dollar gained 0.3% to 0.5847.
