Dollar at week low as geopolitics revive 'Sell America' trade

Investors were dumping dollar assets on "fears of prolonged uncertainty, strained alliances, a loss of confidence in U.S. leadership, potential retaliation and an acceleration of de-dollarization trends," said Tony Sycamore, market analyst at IG in Sydney.

• Dollar index hits weekly low after White House threats over Greenland.
• US stocks, bonds, and dollar drop due to alliance fears and uncertainty
• Fed expected to keep rates unchanged; other major currencies mostly steady

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The dollar retreated to its lowest level in a week in early trading on Tuesday after threats from the White House towards the European Union over the future of Greenland triggered a broad selloff across U.S. stocks and government bonds.

The dollar index, which measures the greenback's strength against a basket of six currencies, slid 0.1% to 99.004 - its lowest level since January 14 as investors worried about exposure to U.S. markets.

On Monday, U.S. President Donald Trump's renewed tariff threats against European allies triggered a repeat of the so-called "Sell America" trade that emerged after last year's Liberation Day tariff announcement in April, with stocks, Treasury bonds and the dollar all selling off. U.S. markets will return on Tuesday following a public holiday for Martin Luther King Jr. Day.

Investors were dumping dollar assets on "fears of prolonged uncertainty, strained alliances, a loss of confidence in U.S. leadership, potential retaliation and an acceleration of de-dollarization trends," said Tony Sycamore, market analyst at IG in Sydney.

"While there are hopes the U.S. administration may soon de-escalate these threats, as it has with prior tariff announcements, it is clear that securing Greenland remains a core national security objective for the current administration," he added.

The yield on the U.S. 10-year Treasury bond was up 3.0 basis points at 4.2586%. Fed funds futures are pricing an implied 94.5% probability that the U.S. central bank will remain on hold at its next two-day meeting next week, little changed from Friday, according to the CME Group's FedWatch tool.

Against the yen, the dollar was flat at 158.175 yen after Japanese Prime Minister Sanae Takaichi called snap elections for February 8. Her vow to suspend an 8% sales tax on food for two years has focused attention on the country's shaky public finances.

Against the Chinese yuan trading offshore in Hong Kong, the dollar was holding steady at 6.9536 yuan. Later on Tuesday, the People's Bank of China is expected to leave benchmark lending rates unchanged for an eighth straight month in January, a Reuters survey showed.

The Australian dollar was down 0.1% at $0.6710, while the New Zealand dollar slipped 0.1% to $0.5794, edging back from a two-week high.

The euro was flat at $1.1640, while the British pound was also steady at $1.3427.

Bitcoin was off 0.6% at $92,336.99, while ether fell 1.1% to $3,174.41.