FOREX-Dollar extends losses as geopolitics revive 'Sell America' trade

By Gregor Stuart Hunter

SINGAPORE, Jan 20 (Reuters) - The dollar retreated for a second day in Asian 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 =USD, which measures the greenback's strength against a basket of six currencies, slid as much as 0.2% to 98.891 - its lowest level since January 13 - 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 declining. 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-dollarisation 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 95% probability that the U.S. central bank will remain on hold at its two-day meeting next week, little changed from Friday, according to the CME Group's FedWatch tool.

The euro EUR= was last up 0.1% at $1.1658, while the British pound GBP= gained 0.1% to $1.3437.

"The market still doubts tariff implementation," analysts from OCBC wrote in a research note. "For now, potential de‑dollarisation flows outweigh the EUR and GBP negative impact of possible Eurozone and U.K. growth downgrades should Trump’s tariffs materialise."

Against the yen JPY=, the dollar was last down 0.1% at 157.905 yen after Japanese Prime Minister Sanae Takaichi called snap elections for February 8. Her pledge to suspend an 8% sales tax on food for two years has focused attention on the country's shaky public finances, though the Japanese currency was little changed after a sale of 20-year government bonds saw slack demand at an auction on Tuesday.

Against the Chinese yuan trading offshore in Hong Kong CNH=, the dollar was 0.1% lower at 6.9540 yuan, the weakest level for the greenback since May 2023. The People's Bank of China left benchmark lending rates unchanged for an eighth straight month in January, as expected by analysts polled by Reuters.

Indonesia's rupiah weakened to a record low of 16,985 against the dollar on Tuesday as investors fretted about the country's central bank independence after President Prabowo Subianto nominated his nephew to join Bank Indonesia's Board of Governors.

The Australian dollar AUD= was up 0.2% at $0.6727, while the New Zealand dollar NZD= climbed 0.5% to $0.58265, its highest level of this year.

Bitcoin BTC= was off 0.6% at $92,336.99, while ether ETH= fell 0.8% to $3,186.86.