Dollar Index Plummets As Greenback Grapples With Greenland Fiasco

(RTTNews) - The U.S. dollar lost heavily against major currencies during the week ended January 23 that witnessed the U.S. President's intensified push to take control over Greenland as well as an unexpected walk-back of the threats. Concerns about the Fed's independence, fears of another federal government shutdown, geopolitical tensions, key economic data releases, turbulence in Japanese bond markets, all swayed currency market movements during the week.

During the past week, the U.S. dollar inter alia plunged against the euro, the British pound, the Australian dollar, the Japanese yen, the Canadian dollar, the Swedish krona as well as the Swiss franc. As a result, the Dollar Index which measures the Dollar's strength against a basket of 6 currencies also dropped almost close to two percent.

Amidst aggressive trade threats and geopolitical turbulence tied to the Danish territory of Greenland, currency markets braced anxiously for President Donald Trump's address at the World Economic Forum at Davos on Wednesday afternoon. However, his unexpectedly soft tone triggered substantial volatility in prices.

Data released by the U.S. Bureau of Economic Analysis on Thursday showed the U.S. economy expanded at an annualized rate of 4.4 percent in the third quarter, higher than the initial estimate of 4.3 percent. The update revealed the strongest GDP growth since the third quarter of 2023. Data released on Thursday also showed both the headline and core year-on-year PCE price inflation recording 2.8 percent in November. Likewise, as expected, both the headline and core month-on-month PCE price inflation recorded 0.2 percent in November.

Nevertheless, the dollar weakened further on Friday as geopolitical tensions unsettled investors and led the dollar to its steepest weekly decline since June of 2025.

During the past week, the Dollar Index slipped from the weekly high of 99.47 recorded on Monday to the weekly low of 97.43 recorded on Friday. The index eventually closed the week's trading at 97.60, implying a decline of 1.8 percent from the level of 99.39 on January 16.

Amidst the dollar's weakness attributed to the geopolitical tensions linked to Greenland, the EUR/USD pair jumped 1.97 percent during the week ended January 23. From the weekly low of 1.1572 touched on Monday, the pair climbed to a high of 1.1834 on Friday. The pair eventually closed the week at 1.1828, versus 1.1599 a week earlier. The British pound also surged against the greenback during the week ended January 23 amidst the dollar's massive weakness. The GBP/USD pair which had closed at 1.3383 on January 16 gained 1.96 percent during the week ended January 23 to close at 1.3645. The weekly trading range was wider, between a low of 1.3329 recorded on Monday and a high of 1.3648 recorded on Friday. Data released during the week had showed higher-than-expected levels of unemployment as well as inflation.

The Australian Dollar jumped 3.2 percent against the U.S. Dollar during the past week, amidst the dollar's plunge against major currencies. An unexpected decline in the unemployment rate as well as the expected spike in inflation also boosted chances of a rate hike by the Reserve Bank of Australia, strengthening the Aussie. The AUD/USD pair surged from the level of 0.6683 recorded on January 16 to close the week ended January 23 at 0.6896. During the week, the pair oscillated between a low of 0.6667 recorded on Monday and the high of 0.6900 recorded on Friday.

The U.S. Dollar declined against the Japanese Yen also during the week ended January 23 amidst turbulence in Japanese bond markets and a whipsawing yen. The USD/JPY pair closed the week at 155.72 versus 158.12 a week earlier, registering a decline of 1.52 percent. Amidst fears of government intervention, the pair oscillated heavily on Friday, recording the week's high of 159.24 as well as the week's low of 155.64. Ahead of February's snap election, the Bank of Japan had in its latest review on Friday kept its key short-term interest rate unchanged at 0.75 percent.

Strong economic indicators from across the globe have moderated expectations of further monetary easing by central banks. Interest rate decisions by the U.S. Federal Reserve and Bank of Canada are due on January 28 followed by decisions from Reserve Bank of Australia, Bank of England, as well as the European Central Bank in the first week of February.

Interest rate expectations from the Fed overwhelmingly point to a pause on January 28. According to the CME FedWatch tool, the likelihood of a Fed rate cut in the forthcoming review is just 2.8 percent. It was 4.4 percent a day ago.

Amidst the Japanese yen's rebound driven by worries about potential coordinated government intervention between Tokyo and Washington, the Dollar Index declined from 97.60 on Friday to 97.04 on Monday. It is currently trading near the flatline even as markets digested concerns about the Fed's independence as well as fears of another federal government shutdown.

The EUR/USD pair is currently at 1.1877 versus 1.1881 on Monday and 1.1828 on Friday. The GBP/USD pair is currently trading near 1.3687 versus 1.3680 on Monday and 1.3645 on Friday. The AUD/USD pair is currently at 0.6923 versus 0.6917 on Monday. The pair had closed at 0.6896 at close on Friday. With the yen staging a strong comeback, the USD/JPY pair is now at 154.01 as compared with the level of 155.72 recorded at the end of the previous week and 154.17 on Monday.