The U.S. dollar headed toward its steepest weekly decline in more than a year as investors reacted nervously to President Donald Trump’s shifting stance on Greenland and trade relations.
Currency markets were unsettled after Trump claimed the United States had secured access to Greenland through a NATO-backed deal, while simultaneously retreating from tariff threats against Europe.
Although the president ruled out using force to take the autonomous Danish territory, the abrupt policy pivots unsettled investors already wary of geopolitical uncertainty.
Dollar Under Pressure Across Markets
The greenback absorbed the bulk of market anxiety as U.S. assets came under heavy selling pressure earlier in the week.
The dollar index, which tracks the currency against six major peers, slid to 98.329 after a sharp daily drop, leaving it on course for a roughly 1% weekly fall.
That would mark the dollar index‘s weakest weekly performance since January 2025, underscoring how quickly sentiment has turned against the currency.
The euro held firm near $1.1751, hovering close to a three-week high, while sterling traded around $1.3496 after touching a two-week peak.
Thierry Wizman, global FX and rates strategist at Macquarie Group, said the Greenland agreement eased immediate risks but failed to address deeper diplomatic fractures.
“And that’s not a good place to be if you want to preserve the USD’s reserve-currency status.”
Focus Turns To Bank Of Japan
Investor attention shifted to Japan, where the Bank of Japan was widely expected to keep interest rates unchanged following last month’s hike to a 30-year high.
Markets were particularly focused on Governor Kazuo Ueda’s guidance for clues on the timing of future rate increases.
Any sign of a more hawkish stance could provide relief for the yen, which has remained under persistent pressure.
The Japanese currency hovered near 158.50 per dollar in Asian trading and was on track for a fourth consecutive weekly decline.
Traders remain alert to the risk of official intervention if the yen weakens beyond 160 per dollar.
Yen Struggles Amid Fiscal Concerns
The yen’s weakness has intensified since Sanae Takaichi became prime minister in October, with the currency falling more than 4% on mounting fiscal worries.
Magdalene Teo, head of fixed income research for Asia at Julius Baer, said concerns over loose monetary policy continue to weigh heavily.
“For sustainable JPY appreciation, this would require significant investment domestically and a strong belief that Takaichi’s administrative policies will eventually translate into growth and fiscal health and not lead to a collapse.”
Recent data showed Japan’s core inflation slowed in December but remained above the central bank’s 2% target, keeping expectations of further tightening alive.
Bond markets reflected investor unease after government bond yields surged to record highs following promises of tax cuts and a snap election.
Carol Lye, portfolio manager at Brandywine Global, said clearer fiscal direction was urgently needed.
“If there’s no action, then it’s just words. It’s not going to anchor the market down.”
“And until they do, I think there’s still room for the JGBs across the entire curve to continue being volatile. The rate hikes are also not coming in quickly enough.”
Elsewhere, the Australian dollar traded steadily near $0.6841, while the New Zealand dollar edged lower to $0.5914.
Bitcoin rose modestly to around $89,518, recovering slightly from lows seen earlier in the week.