The dollar index (DXY00) fell to a two-week low on Tuesday, closing down 0.79% amidst rising trade tensions as President Trump renewed interest in acquiring Greenland, sparking fears of confrontations with European allies. The president’s threats of steep tariffs on French champagne and a 10% tariff on goods from eight European nations, effective February 1, have compounded concerns over economic stability and currency valuations.
In related market movements, the euro surged to a three-week high, up 0.63%, propelled by stronger-than-expected German ZEW survey results, which indicated economic growth expectations rose to a four-and-a-half-year high of 59.6 in January. Conversely, the Japanese yen experienced slight losses due to burgeoning deficits, but saw limited declines as safe-haven demand increased amid US-Europe tensions. Meanwhile, precious metals benefitted from the dollar’s weakness, with February gold closing up 3.71% and March silver up 6.89%
As markets assess future monetary policy, odds for a 25 basis point rate cut at the FOMC’s next meeting on January 27-28 are estimated at just 5%. Moreover, the anticipated dovish Fed Chair appointment by Trump is further pressuring the dollar as liquidity in financial systems continues to expand.
