The US dollar rebounded from three-week lows against both the euro and the Swiss franc on Wednesday, as investors awaited a speech by US President Donald Trump at the Davos forum, after his tariff threats triggered a broad selloff in US assets.

US Treasury Secretary Scott Bessent said on Wednesday that growth would be a priority of the United States’ presidency of the G20, after urging European partners to wait for President Trump’s remarks.

The United States renewed its tariff threats against European allies on Monday over the Greenland issue, reviving so-called “Sell America” trades that first emerged after US tariff announcements last April.

The euro had gained more than 1% over the previous two sessions, but slipped 0.15% on Wednesday to $1.1710. It had touched $1.1770 on Tuesday, its highest level since December 30.

The Swiss franc, a traditional safe haven, fell 0.30% to 0.7922 per dollar, after rising about 1.5% between Monday and Tuesday.

Thierry Wizman, global FX and rates strategist at Macquarie Group, said: “The next step in the ‘Greenland or nothing’ saga is to see whether common ground can be found, such as joint administration of Greenland under the NATO umbrella, starting with the Davos meetings this week.”

He added that until then, the so-called US exceptionalism story remains vulnerable to further erosion, along with the risk of a reshaping of the geopolitical alignments that have supported markets in recent years, noting that the European Union could resort to significant trade measures.

French President Emmanuel Macron has pushed for the European Union to consider the first use of its powerful trade instrument, informally known as the “trade bazooka,” which could restrict US access to public procurement or impose curbs on trade in services such as technology platforms. Macron said on Tuesday that “it is crazy” that the situation had reached this point.

Speculation about further foreign selling of US assets was also fuelled by an announcement on Tuesday from Danish pension fund AkademikerPension that it plans to sell about $100 million of its US Treasury holdings by the end of the month.

The Japanese yen also came under pressure

The Japanese yen faced heavy pressure as yields on Japanese government bonds surged to record levels, amid investor concerns over expanded fiscal spending as Prime Minister Sanai Takaichi seeks to broaden her mandate through early elections next month.

The dollar was steady against the yen, which came under its own wave of selling after Takaichi on Monday called for early elections on February 8 and pledged a series of measures to loosen fiscal policy.

Long-dated Japanese government bonds were hit the hardest, with the 40-year yield jumping 27.5 basis points to a record 4.215% on Tuesday, before easing slightly to 4.1% on Wednesday.

The yen hit a record low of 200.19 per Swiss franc on Tuesday and remained close to that level on Wednesday, trading at 199.21.

The yen also stayed weak at 184.90 per euro, close to its record low of 185.575 reached a week earlier.

The Bank of Japan is due to announce its policy decision on Friday, but after raising interest rates at its previous January meeting, no change is expected this time.

Strategists at Mizuho Securities wrote in a research note that communications from the meeting are likely to maintain a hawkish tilt.

The Chinese yuan slipped 0.1% to 6.9659 per dollar in onshore trading, after reaching 6.9570 on Tuesday, its strongest level since May 2023.

Before Wednesday’s session opened, the People’s Bank of China surprised markets by setting the daily fixing at 7.0014 per dollar, 8 basis points weaker than the previous fixing of 7.0006 — a move some interpreted as drawing a defensive line at the psychologically important 7-per-dollar level.

The British pound rose in European trading on Wednesday against a basket of global currencies, maintaining gains for a third consecutive day against the US dollar and trading near a one-week high, supported by continued weakness in the US currency, which has been hit by President Donald Trump’s threats over Greenland.

Later today, investors are awaiting the release of the UK’s headline inflation data for December, which is expected to provide key signals on the likelihood of an interest rate cut by the Bank of England when it meets for the first time this year in February.

Price Overview

Pound sterling today: The pound rose by 0.1% against the dollar to $1.3457, from an opening level of $1.3445, while the session low was recorded at $1.3435.

On Tuesday, the pound gained around 0.15% against the dollar, marking a second consecutive daily advance, and touched a one-week high at $1.3492, driven by a broad sell-off in US assets.

US Dollar

The US Dollar Index fell by 0.1% on Wednesday, extending its losses for a third straight session and reflecting continued weakness in the US currency against a basket of major and secondary currencies.

Renewed tariff threats by President Trump against European allies have revived what is known as the “Sell America” trade, which first emerged after the Liberation Day tariff announcement in April last year, when US stocks, Treasury bonds, and the dollar all declined.

Tony Sycamore, market analyst at IG in Sydney, said that investors’ retreat from dollar-denominated assets stems from a loss of confidence in the US administration and rising strains in international alliances following Trump’s latest threats.

Sycamore added that while there are hopes the US administration may soon soften its rhetoric, as it has done after previous tariff announcements, it is clear that securing control over Greenland remains a core national security objective for the current administration.

UK Interest Rates

Following the Bank of England’s meeting last December, traders scaled back their bets on continued monetary easing and further interest rate cuts.

Market pricing for a 25-basis-point cut in UK interest rates at the February meeting remains below 20%.

UK Inflation Data

To reprice expectations surrounding UK interest rates, investors are awaiting the release later today of the UK’s headline inflation data for December, which is expected to have a significant impact on the Bank of England’s policy outlook.

At 07:00 GMT, the headline Consumer Price Index is expected to rise by 3.3% year-on-year in December, up from 3.2% in November, while core CPI is also expected to increase by 3.3% year-on-year, compared with 3.2% in the previous reading.

Pound Sterling Outlook

At Economies.com, we expect that if UK inflation data come in above market expectations, the probability of a UK interest rate cut in February will decline, potentially driving further gains in pound sterling.

Gold prices rose broadly during Wednesday’s trading, extending gains for a third consecutive session and continuing to smash record highs, after breaking above the $4,800-per-ounce level for the first time ever.

The precious metal is now moving sharply closer to the next key psychological threshold at $4,900 per ounce, supported by the ongoing weakness in the US dollar, which has been heavily pressured by President Donald Trump’s tariff threats.

This record-breaking rally is also being driven by an acceleration in safe-haven buying, as geopolitical tensions intensify between the United States and Europe over control of Greenland.

Price Overview

Gold prices today: Gold prices rose by 2.3% to $4,874.21, marking a new all-time high, from an opening level of $4,763.54, while the session low was recorded at $4,757.95.

At settlement on Tuesday, the precious metal gained around 2.0%, marking a second consecutive daily increase, as investors flocked to safe-haven assets amid escalating global geopolitical tensions.

US Dollar

The US Dollar Index fell by 0.1% on Wednesday, extending its losses for a third straight session and reflecting continued weakness in the US currency against a basket of major and secondary currencies.

As is well known, a weaker US dollar makes dollar-priced gold bullion more attractive to buyers holding other currencies.

Renewed tariff threats by President Trump against European allies have revived what is known as the “Sell America” trade, which first appeared after the announcement of Liberation Day tariffs in April last year, when stocks, Treasury bonds, and the dollar all declined.

Tony Sycamore, market analyst at IG in Sydney, said that investors’ shedding of dollar-denominated assets reflects a loss of confidence in the US administration and rising strains in international alliances following Trump’s latest threats.

Sycamore added that while there are hopes the US administration may soon tone down these threats, as it has done after previous tariff announcements, it is clear that securing control over Greenland remains a core national security objective for the current administration.

Geopolitical Tensions

US President Donald Trump reiterated on Tuesday that there would be “no retreat” from his declared goal of controlling Greenland, stressing that he does not rule out the use of force to seize the Arctic island, in an unprecedented escalation that has triggered widespread concern among US allies.

Trump also sharply criticized the North Atlantic Treaty Organization (NATO), arguing that some allies are not carrying their fair share of the security burden, before later saying that the United States “will reach a solution that satisfies NATO and satisfies everyone,” in an apparent attempt to ease growing concerns.

In response, French President Emmanuel Macron adopted a firm tone, stating that Europe will not surrender to bullies and will not submit to intimidation, in a direct rebuke of Trump’s threats to impose steep tariffs on European countries — threats he reiterated during his participation at the Davos forum — should Europe refuse to allow the United States to annex Greenland.

These statements reflect a sharp escalation in tensions between Washington and European capitals, opening the door to a political and trade confrontation that could have far-reaching implications for transatlantic relations and global markets.

US Interest Rates

According to the CME Group’s CME FedWatch Tool, market pricing shows a 95% probability that US interest rates will be left unchanged at the January 2026 meeting, while the probability of a 25-basis-point rate cut stands at 5%.

Investors are currently pricing in two US rate cuts over the course of the coming year, while Federal Reserve projections point to just one 25-basis-point cut.

To reprice these expectations, investors are closely monitoring the release of additional US economic data.

The US Supreme Court is also expected to consider this week a case related to Trump’s attempt to dismiss Federal Reserve Governor Lisa Cook.

The Federal Reserve is widely expected to keep interest rates unchanged at its meeting scheduled for January 27–28, despite repeated calls from Trump for rate cuts.

Gold Outlook

Kyle Rodda, analyst at Capital.com, said that confidence in the United States has been eroded by Trump’s actions over the weekend, including imposing tariffs on European countries and escalating pressure in his bid to annex Greenland.

Rodda added that investors are clearly selling the dollar and US Treasury bonds, particularly long-dated debt, and buying gold instead, as confidence in gold currently exceeds confidence in the US dollar.

SPDR Fund

Gold holdings at the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell by around 4.01 metric tons on Tuesday, bringing total holdings down to 1,081.66 metric tons, retreating from 1,085.67 metric tons, which had marked the highest level since May 3, 2022.

European leaders lined up to condemn what they described as “new colonialism” by US President Donald Trump, warning that the continent is at a crossroads after he said there would be no retreat from his goal of taking control of Greenland.

After weeks of aggressive threats by Trump to seize the vast Arctic island — an autonomous territory within the Kingdom of Denmark — French President Emmanuel Macron said on Tuesday that he preferred “respect over bullying” and “the rule of law over brutality.”

Speaking at the World Economic Forum in Davos, Switzerland, Macron said the current moment was “not a time for new imperialism or new colonialism,” criticizing what he called “unproductive aggression” in Trump’s pledge to impose tariffs on countries opposing a US takeover of Greenland.

Macron added that the United States was seeking to “weaken and subjugate Europe” by demanding “maximum concessions” and imposing tariffs that are “fundamentally unacceptable — all the more so when used as leverage against territorial sovereignty,” as he appeared wearing sunglasses due to an eye condition.

Trump’s push to control Greenland has intensified in recent weeks, after he said the United States would take the Arctic island “one way or another,” adding: “Now is the time, and it will happen!!!” Trump is expected to visit Davos and deliver a speech on Wednesday.

European Commission President Ursula von der Leyen said Trump’s threat to impose 10% tariffs on imports from Denmark, Norway, Sweden, France, Germany, the United Kingdom, the Netherlands, and Finland — unless those countries withdraw their objections — was “a mistake.”

She appeared to question Trump’s reliability, noting that the EU and the United States “agreed a trade deal last July, and in politics as in business, a deal is a deal. When friends shake hands, it should mean something.”

Von der Leyen added that Europeans “see the people of the United States not only as allies, but as friends,” warning against pushing relations into a “downward spiral,” while stressing that any EU response, if required, would be “firm, united, and proportionate.”

Belgian Prime Minister Bart De Wever said Europe was “at a crossroads,” arguing that “so many red lines are being crossed” by Trump that the continent must defend itself or “lose its dignity… the most precious thing any democracy can possess.”

“I want to emphasize that [the United States] is an ally — but they have to act like one,” De Wever said, adding that 80 years of Atlanticism may be nearing an end, as “a NATO member state is threatening another NATO member with military invasion.”

Trump wrote on social media on Tuesday that during a call with NATO Secretary General Mark Rutte, he had “made it very clear that Greenland is inevitable for national and global security. There is no backing away from that.”

Trump also posted an AI-generated image showing himself alongside Vice President JD Vance and Secretary of State Marco Rubio planting a US flag next to a sign reading: “Greenland, US Territory — Established 2026.” Another image depicted a map including Canada and Greenland as part of the United States.

In a separate post, Trump shared a message he said was from Macron, claiming the French president “doesn’t understand what you’re doing about Greenland.” Trump had previously threatened to impose 200% tariffs on French wine and champagne if Macron did not accept an invitation to join what Trump called a “Peace Council.”

The escalating dispute has thrown EU–US trade relations into fresh turmoil, forcing the bloc to consider retaliatory measures and threatening to unravel the transatlantic alliance within NATO that has underpinned Western security for decades.

Canadian Prime Minister Mark Carney, speaking after returning from a visit to Beijing to establish a new Canada–China partnership, said “middle powers” need to work together to build a better global order.

“We seem to be reminded every day that we are living in an era of great-power competition, and that the rules-based order is fading,” Carney said in a speech that drew warm applause in Davos.

He added that the world is facing “the end of a comforting illusion and the beginning of a harsh geopolitical reality,” noting that major powers are no longer constrained. “We know the old system will not return. We should not mourn it. Nostalgia is not a strategy.”

Trump is scheduled to attend the World Economic Forum alongside EU leaders who are considering retaliatory steps that could include a package of tariffs on US imports worth €93 billion ($100 billion), a package currently suspended for six months.

Another option under discussion is the EU’s Anti-Coercion Instrument (ACI), which has never been used and could restrict US access to public procurement, investment, banking activities, and trade in services, including digital services.

Senior members of the European Parliament’s International Trade Committee are expected on Wednesday to formally suspend ratification of the EU–US trade agreement signed in July, following an agreement among the largest political groups, according to a parliamentary source.

Danish Economy Minister Stephanie Lose said in Brussels: “This is not just an issue for the Kingdom of Denmark, but for the entire transatlantic relationship. At this stage, we do not believe any option should be ruled out.”

By contrast, US Treasury Secretary Scott Bessent said US–European relations remain strong, urging partners to “take a deep breath” and let tensions over Greenland “run their course.”

Bessent said a solution would be found and described “European hysteria” as unwarranted, adding: “It’s only been 48 hours. Relax. I’m confident leaders will not escalate this, and that it will end very well for everyone.”

Trump has shaken the EU and NATO by refusing to rule out the use of military force to seize Greenland — a strategically important, mineral-rich island protected by multiple NATO and EU arrangements due to Denmark’s membership in both.

Greenland’s Prime Minister Jens-Frederik Nielsen said in the capital Nuuk that military force was “unlikely,” but possible. “Greenland is part of NATO, and any escalation would have consequences for the outside world,” he said.

Danish Prime Minister Mette Frederiksen told parliament that “the worst may still lie ahead,” adding that Denmark “has never sought conflict, but has consistently sought cooperation.”

Trump has repeatedly argued that the United States needs to control Greenland for “national security” reasons, despite already operating a military base on the island and having a bilateral agreement with Denmark allowing a significant expansion of its presence.

Von der Leyen said the EU is working on an Arctic security package based on respect for Greenlandic and Danish sovereignty, a substantial increase in investment in Greenland, and cooperation with the United States in the region.

Danish public broadcaster TV2 Denmark reported that 58 Danish soldiers arrived in Greenland on Tuesday, joining around 60 troops previously deployed for a multinational military exercise known as Operation Arctic Endurance.

Swedish Defense Minister Pål Jonson said European leaders are considering establishing a more permanent military presence in the High North to help ensure Arctic security — a long-standing US request.

Separately, Ukrainian President Volodymyr Zelensky said he currently has no plans to travel to Davos, but may change course if his delegation and US officials make progress on peace efforts aimed at ending the war in Ukraine.