Dollar Rebounds After Trump Withdraws Tariff Threat
The US dollar strengthened on Wednesday (January 21) after President Donald Trump withdrew his tariff threat against several European countries, which he had previously linked to the Greenland issue. Trump claimed there was already a "framework" for a future agreement with NATO regarding Greenland/the Arctic, preventing the planned tariffs from being implemented.
The market reaction was immediate, sending EUR/USD down to the 1.17 area (around 1.1697), after strengthening in the previous two sessions. Meanwhile, safe-haven currencies also weakened: USD/CHF rose to around 0.796 (meaning the franc weakened).
This calm came as Trump also confirmed he would not use military force against Greenland. These comments eased market fears that had triggered a sell-off in US assets (the dollar and stocks) when the tariff threat and Trump's rhetoric heated up earlier in the week.
Despite Trump's continued tariffs, Europe has not let up its guard. Political and trade pressure remains: EU parliament and officials are reportedly taking steps to delay or tighten their stance on the trade agenda with the US, and discussions on Europe's response are ongoing.
In Asia, market focus is on the yen. USD/JPY remains high around 158.3, amid concerns about Japan's fiscal situation ahead of the snap election on February 8th, which is feared to expand spending and shake the bond market.
The bottom line: the dollar can benefit from the easing of the worst-case scenario for Greenland. But as long as tariff issues can change rapidly, and Japan continues to unsettle the bond market, FX volatility is far from over.
Source: Newsmaker.id
