The US dollar edged higher against the euro and the Swiss franc on Wednesday, recovering from three-week lows as investors positioned ahead of a speech by President Trump at the World Economic Forum in Davos.
The move followed a volatile start to the week after renewed US tariff threats towards European allies sparked a broad sell-off in US assets, reviving the so-called “Sell America” trade last seen during tariff tensions in April. US Treasury Secretary Scott Bessent said growth would be the priority of the United States’ presidency of the G20, urging European partners to wait for Trump’s remarks before responding.
The euro, which had gained more than 1% over the previous two sessions, slipped 0.15% to $1.1710, after touching $1.1770 on Tuesday. This marked its highest level since December 30th. The Swiss franc also eased, falling 0.30% to 0.7922 per dollar after rising around 1.5% earlier in the week.
Market uncertainty has been fuelled by fresh geopolitical tensions following renewed US tariff threats linked to Greenland, raising concerns over potential retaliation from Europe.
French President Emmanuel Macron has called for the European Union to consider deploying its Anti-Coercion Instrument, often dubbed the “trade bazooka”, which could restrict US access to public tenders or limit trade in services such as technology platforms. Macron said on Tuesday it was “crazy” that tensions had escalated this far.
Concerns over foreign investor sentiment were also heightened after Danish pension fund AkademikerPension announced plans to sell roughly $100 million in US Treasuries by the end of the month.
The Japanese yen remained under pressure, weighed down by a sharp rise in government bond yields amid concerns over looser fiscal policy ahead of snap elections called by Prime Minister Sanae Takaichi for February 8th.
The longest-dated Japanese government bonds were hit hardest, with the 40-year yield jumping 27.5 basis points to a record 4.215% on Tuesday, before easing slightly to around 4.1% on Wednesday.
The dollar was little changed against the yen, while the Japanese currency hovered near record lows against its peers. The yen traded at 199.21 per Swiss franc, close to Tuesday’s record low of 200.19, and near historic lows against the euro at 184.90.
The Bank of Japan is due to announce its latest policy decision on Friday. After raising interest rates at its previous meeting, no change is expected this time. Strategists at Mizuho Securities said the central bank is likely to maintain a broadly hawkish tone in its communication.
In Asia, the Chinese yuan weakened 0.1% to 6.9659 per dollar in onshore trading, after hitting a near eight-month high on Tuesday. Ahead of the session, the People's Bank of China set the daily midpoint at 7.0014 per dollar, slightly weaker than the previous fixing, and signalling to markets that policymakers may be drawing a line near the psychologically important 7-per-dollar level.
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