The US dollar edged upward on Thursday, continuing the rebound observed after declining sharply earlier in the week. This movement followed President Donald Trump’s announcement that he would not pursue tariffs on European allies in relation to his plans concerning Greenland. Additionally, Trump dismissed any intention of using military force over the matter.
By 04:15 ET (09:15 GMT), the Dollar Index, which measures the greenback’s performance against six major currencies, registered a 0.1% increase to 98.630. This came on the heels of gains from Wednesday, as the currency regained composure after experiencing its most significant single-day drop in six weeks on Tuesday.
Analysts highlighted that the dollar's recent recovery correlated with the defusing of trade tensions that had unnerved markets. The president's announcement regarding Greenland marked a shift away from prior threats of trade tariffs that had unsettled investors and led to a partial sell-off of US assets.
“Following the revelation of an emerging framework deal concerning Greenland, the dollar has tracked a relief rally in risk assets, buoyed by the postponement of new EU tariffs,” noted analysts from ING. They cautioned, however, that details about the agreement remain scarce and markets may require more information along with ongoing diplomatic tones before fully moving past the Greenland issue.
Looking ahead, attention is expected to pivot back to core economic indicators, especially with the Federal Reserve’s upcoming meeting scheduled for January 28. Several releases anticipated this week include the weekly initial jobless claims report, which will shed light on labor market resilience, and an update on third-quarter GDP that should reaffirm US economic strength.
Among economic metrics, the Federal Reserve’s preferred inflation gauge, core personal consumption expenditures (PCE) for November, is of particular interest as investors seek insight into the future trajectory of interest rates in 2024.
Across the Atlantic, the euro hovered largely unchanged against the dollar at 1.1688 following a 0.3% decline the previous day. Market participants remain focused on US dollar movements, which have been the primary driver of EUR/USD variations. The easing of trade tariff concerns following the Greenland framework has revived some appetite for the dollar, curbing euro gains.
According to ING, “EUR/USD remains primarily influenced by US dollar dynamics and the unwinding of tariff concerns via progress on Greenland, which supports renewed dollar strength. While vulnerabilities to a weaker US dollar exist, continued diplomatic resolutions might pressure EUR/USD somewhat lower.”
The British pound showed slight weakness versus the dollar, slipping 0.1% to 1.3423. This followed recent UK data releases on employment and inflation that suggested stabilization. Although the Bank of England cut interest rates by 25 basis points in December, it is broadly anticipated that monetary policy will remain steady in the near term.
In the Nordic region, USD/NOK decreased by 0.4% to 9.9134, coinciding with the Norges Bank’s hold on policy rates at 4.0%. Inflation data from December indicated a modest uptick in both headline (3.2%) and core (3.1%) inflation. ING’s analysts view core inflation as more significant for Norges Bank and suggest any dovish shift will depend on core inflation moving below 3.0%.
Turning to Asia, the Japanese yen faced continued downward pressure, with USD/JPY rising 0.4% to 158.82—levels near an 18-month low. Investors are weighing Prime Minister Sanae Takaichi’s decision to call a snap election in early February and the prospect of expansionary fiscal policy. The Bank of Japan is expected to maintain steady interest rates when it concludes its meeting on Friday amid ongoing political and economic uncertainty.
The Chinese yuan traded near previous levels at 6.9635 against the dollar. Meanwhile, the Australian dollar surged 0.7% to 0.6804, reaching a 15-month peak. This followed robust employment data showing an addition of 65,200 jobs in December, surpassing forecasts, while unemployment slid to 4.1%. Such strength in labor markets reinforces expectations that the Reserve Bank of Australia could raise rates as soon as its upcoming February meeting, with traders revising upward the likelihood of a near-term hike.