The US dollar experienced a slight decline on Thursday as volatility from geopolitical concerns subsided, notably after President Donald Trump abandoned threats of tariffs and dismissed the possibility of seizing Greenland by force. This de-escalation helped ease the previous market unease characterized by a 'sell America' sentiment.
Market reaction was muted in response to the release of the US Personal Consumption Expenditures (PCE) inflation data, the Federal Reserve’s preferred measure of inflation. The report indicated that consumer spending increased steadily in both October and November, reinforcing expectations for a third consecutive quarter of robust economic expansion.
Consumer expenditures, which represent over two-thirds of the overall economic activity, rose by 0.5% in November, matching the increase seen in October. These figures were consistent with economists’ forecasts, which had anticipated a 0.5% rise for November according to a Reuters survey.
Currency markets saw the US dollar recover against the euro on the previous day, in the wake of Trump’s conciliatory remarks about Greenland, following a decline of nearly 1% between Monday and Tuesday. On Thursday, the dollar traded down by 0.35% to $1.1726 per euro, after registering a 0.35% gain in the prior session. It also weakened against the Swiss franc by 0.52%, reaching 0.7913 francs.
The Australian dollar strengthened appreciably, hitting a 15-month high buoyed by data revealing an unexpected drop in the country’s unemployment rate. The currency climbed to $0.6818, poised for its fourth consecutive daily increase despite a week's overall pressure on risk assets.
The Japanese yen remained under pressure amidst political developments, as Prime Minister Sanae Takaichi announced a snap election and vowed policies aimed at loosening fiscal constraints. The yen declined marginally by 0.07% to 158.415 per US dollar, nearing an 18-month low of 159.45 recorded last week.
Concerns earlier in the week stemmed from Trump’s tariff threats against allied nations opposing his Greenland ambitions, which triggered a broad selloff of US assets. However, market analysts noted that evidence for a widespread shift away from the US dollar remains limited.
Bob Savage, head market strategist at BNY, commented that the narrative of European investors offloading US holdings is difficult to substantiate. He characterized the situation primarily as a risk-management reaction, with increased hedging activity prompted by a rise in market volatility following a period of subdued turbulence at the end of the previous year.
As details about any agreement framework concerning Greenland remain unavailable, Savage anticipates that the brief episode of volatility is likely to fade, with market focus returning towards central bank policies and interest rate differentials.
The Australian and New Zealand dollars’ recent strength underscores ongoing speculation about short-term interest rate movements relative to monetary policy approaches. Jane Foley, senior forex strategist at Rabobank, highlighted that this dynamic continues to influence currency valuations.
In Japan, expectations of a hawkish stance from the Bank of Japan in its policy meeting scheduled for Friday are seen as a potential stabilizing factor for the yen, which is approaching levels considered for potential government intervention to curb excessive weakening.
Additionally, Japan’s long-term government bonds extended their gains, spurred by anticipations that the finance ministry may implement measures to restrain further rises in yields.