US Dollar Rises as Trump Rules Out Military Action in Greenland

The US dollar strengthened slightly on January 21, 2024, after President Donald Trump ruled out military action in Greenland during his speech at the World Economic Forum in Davos. This decision came as investors reacted to recent tariff threats that had previously led to a significant selloff in US assets.

Following Trump’s comments, the US dollar edged higher against major currencies, including the euro and the Swiss franc. The euro fell by 0.17 percent, trading at approximately US$1.17, having reached its highest level since December 30, 2023, just two days prior. The Swiss franc also lost ground, decreasing by 0.47 percent, with a value of 0.7934 per US dollar.

Analysts suggest that while Trump’s speech offered some reassurance, the situation remains tense. Adam Button, chief currency analyst at investingLive, noted, “We’re clearly not at the end of this saga, but any use of force would cause an irreparable schism between the US and Europe.” His comments highlight the delicate balance that the US must maintain in its international relations, especially with European allies.

In a related development, French President Emmanuel Macron urged the European Union to consider employing its Anti-Coercion Instrument. This measure, informally referred to as the “trade bazooka,” could impose limits on US access to European public tenders or restrict trade in services, particularly in technology. Macron characterized the current situation as “crazy,” indicating the gravity of the circumstances.

Additionally, the Danish pension fund AkademikerPension announced on January 20 that it would divest approximately US$100 million in US Treasuries by the end of the month, further fueling concerns about foreign investment in US assets. The divestment reflects broader anxiety within the investment community regarding the stability of US financial instruments.

In the context of these developments, NATO Secretary General Mark Rutte acknowledged that he is working “behind the scenes” to ease tensions between the US and Europe. The geopolitical climate continues to influence currency markets worldwide, particularly in Europe.

The Swedish krona achieved a notable milestone, reaching a four-year high against the US dollar at 10.099. Investors are increasingly favoring currencies from nations with lower debt levels amid ongoing economic uncertainty.

Meanwhile, the US dollar remained stable against the Japanese yen, despite the yen facing a selloff. Japanese Prime Minister Sanae Takaichi called for snap elections on February 8, 2024, and pledged measures to ease fiscal policy. The yen slightly weakened, trading at 158.255 per US dollar.

Market analysts are closely monitoring the situation in Japan, particularly regarding Japanese government bonds (JGBs). Vincent Chung, co-portfolio manager at T. Rowe Price, expressed concerns about the volatility in this segment, stating, “The absence of strategic buyers in this segment has made price action more sensitive and amplified volatility.”

Chris Turner, global head of markets at ING, warned that further sell-offs in JGBs could push the US dollar/yen exchange rate towards intervention territory at 159/160. He emphasized that if the yen’s decline is a result of domestic policy decisions, the effectiveness of intervention might be increasingly questionable.

As these global financial dynamics unfold, investors remain vigilant, weighing the implications of political statements and economic policies on currency values and international relations.