FOREX-Dollar battered as geopolitics revive 'Sell America' trade

By Gregor Stuart Hunter and Amanda Cooper

SINGAPORE/LONDON, Jan 20 (Reuters) - The dollar headed for its largest daily fall in over a month on Tuesday, after threats from the White House to Europe over the future of Greenland triggered a broad selloff across U.S. stocks and government bonds, and drove the euro and the pound higher.

The dollar index =USD, which measures the U.S. currency's performance against a basket of six others, fell as much as 0.6% - marking its biggest one-day drop since mid-December - 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," Tony Sycamore, market analyst at IG in Sydney, said.

"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 euro EUR= rose 0.6% to $1.1719, while the pound GBP= gained 0.35% to trade at $1.3474. Sterling got a minor additional lift from UK labour market data that showed unemployment remained at a five-year high, but also offered positive signs such as vacancy numbers plateauing.

In terms of investor demand for euros, the "Sell America" effect could be short-lived, Barclays strategist Lefteris Farmakis suggested.

"Tariff threats are a marginal negative for the dollar in the near-term given long positions and still-low hedge ratios from a historical perspective. That said, major escalation with NATO spill-overs is a much bigger problem for the euro than Liberation Day," he said.

Weekly data from the U.S. markets regulator shows investors have trimmed their largest long, or bullish, holdings of euro futures modestly, but that position is still close to its largest since mid-2023 EURNETUSD=, which in theory means there could be appetite to sell.

The yen, which slid overnight as a selloff in Japanese government bond markets accelerated, picked up as European trading got underway, leaving the dollar down 0.2% at 157.75.

Japanese Prime Minister Sanae Takaichi has called snap elections for February 8 and has pledged a wave of measures to loosen fiscal policy, which has unnerved investors in Japanese sovereign bonds about the country's fragile public finances.

The Swiss franc CHF=, a key beneficiary of any safe-haven flows, strengthened for a third straight day, leaving the dollar down 0.9% at 0.7902.

Against the Chinese yuan trading offshore in Hong Kong CNH=, the dollar was steady at 6.952 yuan, its weakest 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.

The Australian dollar AUD= rose as much as 0.48% to $0.675, approaching its strongest since October 2024, while the New Zealand dollar NZD= climbed 0.77% to $0.584, its highest level this year.

Bitcoin BTC= fell another 2.1% to $90,949, while ether ETH= fell 3.7% to $3,117.03.