FOREX-US dollar buoyed by Trump's Greenland about-face; Aussie jumps after jobs data

By Kevin Buckland

TOKYO, Jan 22 (Reuters) - The U.S. dollar held on to overnight gains against major peers on Thursday after President Donald Trump withdrew a threat to impose tariffs on a number of European NATO nations, trumpeting the framework of a deal with NATO over control of Greenland.

The Australian dollar was buoyed to a 15-month high both by improvement in risk sentiment and by data showing an unexpected decline in the jobless rate.

The yen remained under pressure, matching last week's record low versus the euro, after Japanese Prime Minister Sanae Takaichi this week called a snap election and pledged measures to loosen fiscal policy.

The Bank of Japan kicks off a two-day policy meeting on Thursday, but market participants expect no change as the central bank raised its policy interest rate at its previous meeting last month.

The U.S. dollar held steady at $1.1688 per euro EUR= on Thursday, following a 0.3% rebound in the prior session. It weakened slightly to 0.7947 Swiss francs CHF=, after leaping 0.7% overnight.

Trump's threat to levy tariffs on allied nations opposed to his ambition to control Greenland spooked markets and triggered a broad selloff of U.S. assets, but his comment in Davos on Wednesday that he had ruled out military action offered relief.

The U.S. president said he has reached a framework for a deal with NATO over Greenland, but he did not offer any details in a post to his Truth Social platform about what that would entail. As a result, though, he said he would not impose tariffs.

"Traders have been quick to react to some punchy reversals in markets, cutting back on recently entered bearish risk positioning and long volatility hedges, part covering USD shorts, and running a more balanced exposure in gold and silver," Chris Weston, head of research at Pepperstone, wrote in a client note.

"Between Trump's speech in Davos and his posts on social media, the market has largely removed the tail risk of a U.S. confrontation with its NATO partners."

The risk-sensitive Aussie AUD= rose as much as 0.7% to $0.68105, a level not seen since October 2024. It also vaulted as much as 1% to the highest since July 2024 at 108.03 yen AUDJPY=.

Australian data for December showed a drop in the jobless rate to a seven-month low amid a surge in employment that was more than double what economists predicted.

"Today's red-hot jobs report has dramatically increased the chances of an RBA rate hike" at its February 2-3 meeting, IG analyst Tony Sycamore said in a note.

"While monthly labour force data can be volatile and subject to noise, the December report aligns with the RBA's assessment that labour market conditions remain tight."

The yen slipped 0.3% to touch 185.56 per euro EURJPY=, matching the record low touched on Wednesday of last week.

The Japanese currency weakened 0.2% to change hands at 158.68 per U.S. dollar JPY=, near last week's 18-month trough of 159.45.

"We expect the JPY to remain vulnerable to depreciation pressure for the time being, given domestic fiscal concerns and robust demand among Japanese investors for overseas assets," Barclays analysts said in a client note.