The US dollar’s positive momentum since last week was shaken after US President Donald Trump’s threats to the European Union over the future of Greenland opened the door for widespread selling activity in the US stock and government bond markets.
At 9.30am, the US Dollar Index (DXY) was at 99.082 points, having recovered 0.04% since it opened in early trading on Tuesday in the Asian session.
US President Donald Trump’s threat of new tariffs against European allies on Monday has reignited the massive sell-off trading sentiment that previously emerged following the Emancipation Day tariff announcement in April last year.
The simultaneous selling pressure on US stock markets, Treasury bonds and the USD reflected increasing investor concerns over the direction of the country’s trade policy.
US financial markets were closed on Monday in conjunction with the Martin Luther King Jr. Day holiday and are scheduled to resume operations on Tuesday. The absence of cash trading also added to volatility in global markets as investors assessed the latest developments.
The sell-off in dollar-denominated assets was driven by prolonged policy uncertainty, strained alliance relations, declining confidence in US leadership, potential retaliation from trading partners and an acceleration of the dedollarization trend in the global financial system.
While there are expectations that the US administration is likely to ease the tariff threat in the near term, the security of Greenland is seen as a key national security objective, thus maintaining geopolitical risks in the near term.
Meanwhile, Fed funds futures show an implied probability of 94.5% that the US central bank will keep interest rates unchanged at its two-day policy meeting next week.
This estimate is virtually unchanged from the market assessment on Friday, based on data from CME Group's FedWatch tool.
