The U.S. dollar traded near its recent lows on Wednesday, pressured by renewed remarks from President Donald Trump regarding his desire to assert control over Greenland, ahead of his anticipated speech at the World Economic Forum in Davos. The dollar index, which measures the U.S. currency against a basket of six major peers, extended its losses after recording its worst single day performance in six weeks, highlighting persistent pressure amid heightened political uncertainty.
Trump reiterated that control over Greenland is necessary for national security reasons, hinting at the possibility of further escalation on the issue, which kept markets on edge. Analysts believe the Greenland file will remain a key focus for investors during the session, with the potential for easing tensions should Trump’s meetings with European Union leaders in Davos deliver positive signals an outcome that could offer some support to the dollar.
Meanwhile, the British pound found support after data showed UK inflation rose more than expected in December, giving policymakers at the Bank of England room to remain cautious before considering any additional interest rate cuts. Markets now expect monetary policy to remain unchanged at the upcoming meeting.
The euro edged slightly lower after nearing a three week high, as investors continued to monitor developments surrounding Greenland and their potential impact on U.S. European relations. In Asia, the Japanese yen stabilized against the dollar following sharp volatility in the previous session, weighed down by rising long term Japanese government bond yields amid concerns over expanding fiscal spending and a widening budget deficit.
Elsewhere in currency markets, the Chinese yuan moved within a narrow range after the central bank left interest rates unchanged, while the Australian and New Zealand dollars posted moderate gains, benefiting from a modest improvement in overall risk appetite.
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