USD Recovers Three-Week Lows Amid Transatlantic Trade Friction

On Wednesday, the U.S. dollar recovered from three-week lows against the euro and Swiss franc as the market shifted its focus to President Donald Trump’s upcoming Davos appearance. This stabilization follows a period of heavy selling triggered by the administration's recent tariff threats. Treasury Secretary Scott Bessent emphasized that the U.S. G20 presidency would prioritize economic expansion, though he cautioned European allies to wait for the President’s official remarks before reacting further.

Geopolitical tensions over Greenland have reignited the "Sell America" market trend, a repeat of the volatility seen last April. While the euro dipped slightly to $1.1710 on Wednesday, it had previously surged to its highest point since late December. Similarly, the Swiss franc retreated 0.30% after a significant two-day rally. Analysts, including Thierry Wizman of Macquarie Group, suggest that U.S. market dominance remains fragile unless a diplomatic compromise regarding Greenland is reached at Davos. The stakes are high, as French President Emmanuel Macron has hinted at deploying the European Union's "trade bazooka"—a mechanism that could restrict U.S. access to tech services and public contracts. Investor anxiety was further stoked by Denmark’s AkademikerPension, which announced plans to divest $100 million in U.S. Treasuries.

In Asia, the Japanese yen struggled as domestic bond yields hit historic peaks. This volatility stems from Prime Minister Sanae Takaichi’s call for snap elections on February 8 and her promises of aggressive fiscal spending. While the 40-year Japanese bond yield pulled back slightly to 4.1% on Wednesday, the yen remained near record lows against both the euro and the Swiss franc. Although the Bank of Japan is scheduled to meet this Friday, experts anticipate no further rate hikes following the increase implemented in January.

Meanwhile, the Chinese yuan saw a slight decline to 6.9659 per dollar. In an unexpected move, the People’s Bank of China established a midpoint rate of 7.0014. Market observers interpreted this slight softening as a strategic signal that Beijing intends to defend the psychologically important threshold of 7 yuan per dollar.