The US dollar traded broadly flat on Thursday after yesterday’s reversal triggered by a de-escalation in geopolitical tensions between the United States and Europe.
US President Donald Trump announced on Wednesday that he would not proceed with the planned tariffs linked to European opposition over Greenland, citing an understanding reached with NATO regarding the island’s future.
This partial easing of geopolitical risk has helped stabilise dollar sentiment and brought US assets back into focus. Treasury yields, which had surged earlier this week, eased at the long end on Wednesday and Thursday. Further clarity on the diplomatic front could allow yields to drift lower as investors reassess US macro and policy fundamentals rather than geopolitical risk.
Attention now turns to today’s US GDP and PCE inflation releases, which are likely to drive near-term volatility in both forex and yields. Signs of softer growth or contained inflation would reinforce expectations of a more accommodative Federal Reserve stance later this year.
For now, markets continue to see rates on hold in January, followed by roughly two rate cuts by year-end.
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