The US dollar fell sharply on Tuesday as the threat of a transatlantic trade war over Greenland's future prompted traders to reduce their exposure to US markets.
At 11:55 Saudi time, the dollar index, which tracks the performance of the US currency against a basket of six other currencies, fell by 0.9% to 98.340, dropping to its lowest level in nearly two weeks.
The dollar fell due to the Greenland dispute.
The dollar fell for a second day as U.S. investors returned from Monday's holiday and President Donald Trump renewed his threats to impose tariffs against European allies in his bid to take control of Greenland, a semi-autonomous territory belonging to Denmark.
Trump said late Monday: Greenland is vital to national and global security. There is no turning back, adding that he would meet with several officials to discuss the issue at the World Economic Forum in Davos, Switzerland, later this week.
European leaders have widely rejected his calls regarding Greenland, and are scheduled to discuss the issue and possible retaliatory measures at an emergency meeting of EU leaders on Thursday.
Analysts at ING said in a note: “Depending on how the Davos discussions develop, we will then know whether EU leaders need to play hardball when they meet on Thursday, whether US tariffs on Europe will take effect on February 1, and whether Europe will retaliate with a €93 billion tariff package on February 6-7.”
The key economic data in the US on Tuesday is the weekly ADP jobs figures, which are expected to be around 10,000-12,000 again and support a low-employment, but not deteriorating, US labor market, ING added.
The pound rose despite slowing wage growth.
In Europe, the pound/dollar pair rose 0.5% to 1.3483, supported by a weaker dollar even after data showed the UK unemployment rate remained high in November while wage growth slowed, suggesting further interest rate cuts by the Bank of England in the near future.
The unemployment rate remained at 5.1% in the three months to November, the same level as the previous month and the highest since early 2021, while wage growth in the entire economy, excluding bonuses, fell to an annual rate of 4.5% in the three months to November.
The Bank of England cut its main interest rate by 25 basis points to 3.75% in its last decision in December, and is scheduled to meet again in early February.
The euro/dollar pair rose 0.6% to 1.1710, as the single currency benefited from the shift away from the dollar.
German producer prices fell broadly in line with expectations in December, dropping 2.5% compared to the previous year, and attention now turns to the ZEW German economic sentiment index due later in the session.
The index is expected to show growing confidence in the Eurozone's largest economy, with the index poised to head towards its highest level in a year.
ING said: The EUR/USD pair broke technical resistance at 1.1640/50 overnight and looks headed towards the 1.1690/1700 area, but we believe we are far from an environment that would lead to a major dollar sell-off.
The yen remains weak ahead of the elections.
In Asia, the dollar/yen pair rose 0.1% to 158.16, as the yen failed to capitalize on dollar weakness after Prime Minister Sanae Takaichi announced a snap election on February 8 on Monday.
With Takaichi enjoying strong approval ratings, she is expected to be reappointed, which will likely enable the prime minister's plans for further fiscal stimulus.
But markets questioned how much room Takaichi had for further fiscal spending, as Japanese government bond sales continued.
Takaichi's announcement also came ahead of the Bank of Japan's meeting on Friday, where investors were divided over whether the central bank had enough momentum to raise interest rates further.
Elsewhere, the dollar/yuan pair fell 0.1% to 6.9588, unaffected after the People's Bank of China kept its benchmark lending rate unchanged, as widely expected.
However, the yuan remained close to its strongest level in two and a half years after several strong fixes of the reference rate by the People’s Bank of China.
The Australian dollar/US dollar pair rose 0.6% to 0.6746 and the New Zealand dollar/US dollar pair rose 0.9% to 0.5841.
