The U.S. dollar maintained its overnight gains against major currencies on Thursday after President Donald Trump stepped back from a threat to impose tariffs on several European NATO members. Trump said a framework agreement with NATO over Greenland was taking shape, easing fears of a broader transatlantic trade dispute.
The Australian dollar surged to a 15-month high, supported by improved global risk sentiment and fresh data showing an unexpected drop in Australia’s unemployment rate. In contrast, the Japanese yen remained under pressure, hovering near recent lows after Prime Minister Sanae Takaichi called a snap election and signaled looser fiscal policy.
Dollar steadies as trade fears ease
The greenback was little changed at $1.1688 per euro, following a 0.3% rebound in the previous session. It edged slightly lower to 0.7947 Swiss francs after jumping 0.7% overnight.
Markets had been rattled earlier this week after Trump threatened tariffs on allied nations opposing his push for control over Greenland, triggering a broad selloff in U.S. assets. However, his comments at the World Economic Forum in Davos, where he ruled out military action, helped calm investors. Trump later said a framework deal with NATO had been reached, adding that tariffs would no longer be imposed, though he offered few details.
Chris Weston, head of research at Pepperstone, noted that traders moved quickly to unwind bearish bets, reduce long volatility positions, and partially cover U.S. dollar shorts as geopolitical tail risks faded.
Aussie jumps on strong jobs data
The risk-sensitive Australian dollar climbed as much as 0.7% to $0.68105, its highest level since October 2024. It also advanced nearly 1% against the yen, reaching 108.03, a level last seen in July 2024.
Australian labour data for December showed the unemployment rate fell to a seven-month low, driven by a surge in employment that more than doubled economists’ expectations. According to Tony Sycamore, an analyst at IG, the strong report has significantly increased the likelihood of an interest rate hike by the Reserve Bank of Australia at its early February meeting. He added that while monthly data can be volatile, the figures align with the RBA’s view that labour market conditions remain tight.
Yen remains weak ahead of BoJ meeting
The yen slipped 0.3% to around 185.56 per euro, matching last week’s record low. Against the dollar, it weakened 0.2% to 158.68, staying close to an 18-month trough of 159.45.
The Bank of Japan began a two-day policy meeting on Thursday, though markets widely expect no change after the central bank raised interest rates at its previous meeting last month.
Analysts at Barclays said the yen is likely to remain vulnerable in the near term, citing domestic fiscal concerns and continued strong demand among Japanese investors for overseas assets.
