The dollar index — which tracks the U.S. currency against six major peers — slid as much as 0.7%, signaling its largest one-day fall in more than a month. The move reflected growing investor unease over exposure to U.S. assets amid escalating geopolitical tensions.
Monday’s tariff warnings revived the so-called “Sell America” trade, first seen last year after the “Liberation Day” tariff announcement in April. The pattern has repeatedly pressured U.S. equities, Treasury bonds and the dollar when the administration signals fresh trade confrontations with allies.
Investors have been unloading dollar assets amid “fears of prolonged uncertainty, strained alliances, a loss of confidence in U.S. leadership, potential retaliation and an acceleration of de-dollarisation trends,” said Tony Sycamore, market analyst at IG in Sydney. He added that while there may be hope of a de-escalation, the administration appears determined to pursue Greenland as a core national security objective.
The euro surged 0.8% to $1.1742, marking its strongest single-day rally since September. The pound also strengthened, rising 0.24% to $1.346, aided slightly by UK labour market data that showed unemployment holding at a five-year high while job vacancies leveled off.
However, Barclays strategist Lefteris Farmakis warned that the euro’s gains may be short-lived. He noted that while tariff threats may be a marginal negative for the dollar in the near term, a major escalation involving NATO would pose a far bigger risk to the euro.
Investor positioning data showed euro futures long holdings had eased slightly, but remained near their highest level since mid-2023, suggesting there could still be appetite to sell if risk sentiment changes.
Elsewhere, the yen recovered modestly after earlier losses as Japanese government bond yields surged. The dollar traded at 157.68 yen, down 0.3%, amid renewed concerns about Japan’s fiscal outlook ahead of snap elections on February 8.
The Swiss franc, often seen as a safe-haven asset, strengthened for a third consecutive day, pushing the dollar down 1.1% to 0.7885 francs.
In Asia, the dollar was steady against the offshore Chinese yuan at 6.952, its weakest level since May 2023, following China’s decision to keep benchmark lending rates unchanged for the eighth month in a row.
Commodity-linked currencies also benefited from the risk-off mood. The Australian dollar climbed 0.48% to $0.675, nearing its strongest level since October 2024, while the New Zealand dollar rose 0.77% to $0.584, its highest level this year.
Cryptocurrencies also slipped, with bitcoin down 2% to $91,090 and ether falling 3.3% to $3,104.