The dollar fell to its lowest level in two weeks and currency hedging costs climbed as President Donald Trump showed no signs of backing down in his campaign to wrest control of Greenland from Denmark and threatened new tariffs on France.
The Bloomberg Dollar Spot Index slipped to its weakest level since Jan. 6 and was on track for its worst two-day stretch in about a month. The euro rose to a more than two-week high while the Swiss franc led gains in the Group-of-10 currencies.
Elias Haddad, global head of markets strategy at Brown Brothers Harriman & Co., said that dollar weakness likely reflects increased hedging by non-US investors who hold dollar securities.
Trump has threatened to impose tariffs on European countries that oppose his plans to take control of Greenland, sparking fears of a major trade confrontation. The US president has also floated 200% tariffs on French wine and champagne after President Emmanuel Macron rejected an invitation to join his latest peace initiative.
The US currency extended losses on Tuesday after a Danish pension fund that had about $100 million in Treasuries at the end of 2025 said the US is no longer “good credit” and committed to selling the bonds. Earlier in the day, Treasury Secretary Scott Bessent had urged calm and dismissed the idea that Europe could dump Treasuries and other US assets.
Short-dated volatility firmed as last year's pattern of a weaker dollar coinciding with higher hedging costs re-emerged. Euro options volume rose, reflecting both demand for protection and a renewed desire to position for a near-term move higher, in what amounts to the sharpest bullish repricing for the common currency since early August.
“Markets have reacted but there's clearly room for bigger moves if the rhetoric increases further,” Jim Reid, global head of macro research and thematic strategy at Deutsche Bank AG in London, wrote in a note.
Still, the moves are unlikely to resemble the sharp losses of April 2025 as traders outside the US now have more appropriate hedging ratios on US assets, said Chris Turner, head of FX strategy at ING.
In flow terms, options positioning leaned against the greenback. Data from the Depository Trust & Clearing Corporation show investors have favored long exposure in the euro and the Australian dollar versus the dollar since Monday's open.
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