Dollar gains after Trump agrees to outline of Greenland deal, backs off tariffs

The dollar moved sharply higher against the euro and the Swiss franc on Wednesday as US President Trump withdrew a threat to impose tariffs on a number of nations, saying he had reached an agreement on a framework of a future deal on Greenland with NATO.

Trump’s threats to levy tariffs on a number of nations for their stance on Greenland spooked markets and triggered a broad selloff in US assets, but his comments in Davos on Wednesday that he had he ruled out military action in the northern island offered investors some relief.

The euro was down 0.36% at USD 1.17, having risen more than 1% in the last two sessions. It hit USD 1.168 on Tuesday, its highest level since Dec 30.

The safe-haven Swiss franc was down 0.77% to 0.7958 per dollar, after gaining about 1.5% between Monday and Tuesday.

Trump vowed on Saturday to implement a wave of increasing tariffs from Feb 1 on European Union members Denmark, Sweden, France, Germany, the Netherlands and Finland, along with Britain and Norway, until the US is allowed to buy Greenland, a step major EU states decried as blackmail.

Trump did not offer any details in a post to Truth Social on what the framework for a future deal with NATO would entail, but said as a result that he would not impose the tariffs.

The comments sparked a stock market rally, with the S&P 500 index up over 1.5%.

“We’re seeing a bit of a relief rally in markets,” said Matt Weller, global head of market research at StoneX.

“I really do think the details perhaps are not as relevant, even perhaps if they never come to light. The near-term crisis appears to be behind us, and we’ll wait to see what crops up next to drive sentiment.”

Still, European Union leaders are set to proceed with an emergency summit on Thursday to discuss options following Trump’s tariff threat, a council spokesperson said on Wednesday.

YEN ON THE ROPES, INTERVENTION TERRITORY IN FOCUS

The dollar was up against the Japanese currency, which faced its own selloff after Prime Minister Sanae Takaichi on Monday called snap elections for Feb 8 and pledged measures to loosen fiscal policy.

The yen was last down against the dollar at 158.430. Investors closely watched Japanese government bonds (JGBs) which were hit hard early this week, but rebounded on Wednesday.

“The absence of strategic buyers in this segment has made price action more sensitive and amplified volatility. I expect this environment of elevated volatility to persist through 2026,” said Vincent Chung, co-portfolio manager at T. Rowe Price.

“A further sell-off in JGBs would seem to drag the dollar/yen towards intervention territory at 159/160,” said Chris Turner, global head of markets at ING.

“However, if the yen sell-off is a self-inflicted wound from the Japanese government policy, the effectiveness of intervention will become increasingly questionable.”

(Reporting by Hannah Lang in New York; additional reporting by Stefano Rebaudo; editing by Toby Chopra, Jason Neely, and Nick Zieminski)