US Dollar Gains Ground as Trump Avoids Military Action in Greenland

The US dollar rose slightly on January 21, 2024, after President Donald Trump ruled out military intervention in Greenland during his speech at the World Economic Forum in Davos. This statement came after a turbulent period for the US currency, which had recently hit three-week lows against the euro and the Swiss franc as investors reacted to Trump’s previous tariff threats.

Following Trump’s address, the dollar gained momentum against major currencies. The euro fell by 0.17 percent, trading at US$1.17, having risen more than 1 percent in previous sessions. It reached US$1.1770 on January 20, marking its highest level since December 30. The safe-haven Swiss franc also declined, dropping by 0.47 percent to 0.7934 per US dollar after experiencing a 1.5 percent increase earlier in the week.

Analysts noted that while the situation continues to evolve, any potential use of military force could severely damage relations between the US and Europe. Adam Button, chief currency analyst at InvestingLive, commented, “We are clearly not at the end of this saga, but any use of force would cause an irreparable schism between the US and Europe.” He suggested that Trump’s approach at Davos did not indicate a readiness to issue ultimatums.

European leaders are also reacting to the evolving trade landscape. French President Emmanuel Macron has advocated for the European Union to consider activating its Anti-Coercion Instrument, informally known as the “trade bazooka.” This mechanism could restrict US access to public contracts or limit trade in technology services. Macron expressed frustration, stating it was “crazy” that the situation had escalated to this point.

In a related development, the Danish pension fund AkademikerPension announced plans to divest its approximately US$100 million holding of US Treasuries by the end of January. This decision has fueled speculation about potential further selling by foreign investors, as tensions between the US and its European allies persist.

NATO Secretary General Mark Rutte confirmed that he is working behind the scenes to ease these tensions. The Swedish krona reached a four-year high against the US dollar at 10.099, as investors are increasingly drawn to countries with low debt levels.

The US dollar remained steady against the Japanese yen, which has faced its own challenges following Prime Minister Sanae Takaichi‘s call for snap elections on February 8. Takaichi also committed to policies aimed at loosening fiscal measures. The yen was slightly down, trading at 158.255 per US dollar.

Market participants are closely monitoring Japanese government bonds (JGBs), which have experienced volatility. Early in the week, JGBs were impacted severely but showed signs of recovery on January 21. Vincent Chung, co-portfolio manager at T. Rowe Price, indicated that the lack of strategic buyers has led to heightened sensitivity and volatility in the market, a trend expected to continue through 2026.

If selling pressure on JGBs continues, it could push the US dollar against the yen towards intervention territory at levels of 159/160. Chris Turner, global head of markets at ING, highlighted that if the yen’s depreciation is a result of Japanese government policy, the effectiveness of intervention measures may be increasingly uncertain.

Overall, the currency markets are navigating a complex landscape influenced by both geopolitical events and economic policy decisions, with investors keenly aware of the implications for global trade and economic stability.