Asian foreign exchange markets experienced modest declines on Thursday as the U.S. dollar showed marginal strength, aided by a reduction in geopolitical and trade tensions related to Greenland. The U.S. Dollar Index, which tracks the greenback against a set of major currencies, inched up by 0.1% overnight and held steady in early Asian trading hours.
Investors were encouraged by U.S. President Donald Trump’s recent move to retract earlier threats of tariffs linked to his proposal to acquire Greenland. He also dismissed the possibility of using military action, signaling a potential diplomatic resolution. Trump indicated that a framework agreement could be conceivable to settle the dispute in a manner acceptable to all sides, calming prior investor concerns that had increased demand for safe-haven assets.
This diplomatic adjustment contributed to broader market stabilization and eased pressure on the U.S. dollar, which firmed against numerous Asian currencies as market participants re-evaluated regional economic policies and adjusted positions amid the greenback’s relative strength.
Focusing on Japan, the yen remained under downward pressure, with USD/JPY rising 0.3%, hovering near its lowest valuations in 18 months. This trend was influenced by Prime Minister Sanae Takaichi’s initiative to call a snap election alongside plans for expansive fiscal stimulus. Market concerns intensified following proposals to suspend Japan’s 8% consumption tax on food and non-alcoholic beverages for two years, prompting worries about potential deficit financing according to MUFG analysts. Despite Japan’s declared commitment to fiscal discipline and possible foreign exchange intervention, the yen’s weakness appears likely to persist amidst election uncertainties and an increasingly steep Japanese Government Bond yield curve.
Elsewhere in the region, the South Korean won weakened, with USD/KRW advancing 0.3%, while the Singapore dollar remained largely unchanged. The Indian rupee edged just below its record highs, with USD/INR steady at 91.58 following a recent peak at 91.63. In China, the onshore yuan was stable, showing little movement in USD/CNY trading.
Meanwhile, the Australian dollar outpaced regional counterparts, surging 0.8% to reach a 15-month peak against the U.S. dollar. This rise followed the release of stronger-than-expected labor market data for December, which showed employment gains of 65,200 jobs, well above forecasts. Additionally, the unemployment rate declined to 4.1%, contrary to expectations of a slight increase. These robust labor market indicators reinforced market expectations that the Reserve Bank of Australia could consider an interest rate increase as early as its February meeting, with traders elevating the probability of such a move in the near term.