To The Moon

The US dollar fell to its lowest level in two weeks as President Trump showed no sign of retreat in his pursuit of control over Greenland and threatened new tariffs on France, while foreign exchange hedging costs simultaneously climbed. The Bloomberg Dollar Spot Index dropped to its weakest point since January 6th and is on track for its worst two-day performance in about a month. The Euro climbed to a near two-week high, while the Swiss Franc led gains among the Group-of-Ten currencies. Trump's threat to impose tariffs on European nations opposing his plan to acquire Greenland from Denmark has ignited fears of a major trade conflict. Concurrently, after French President Macron refused to join his latest peace initiative, Trump proposed the idea of slapping a 200% tariff on French wine and champagne. As last year's market dynamic of a weaker dollar coupled with rising hedging costs re-emerges, short-term exchange rate volatility continues to increase. A significant rise in Euro option trading volume reflects both the market's need for risk hedging and a renewed investor willingness to position for a near-term Euro appreciation—marking the most aggressive bullish repricing of the Euro since early August last year. Jim Reid, Global Head of Macro Research and Thematic Strategy at Deutsche Bank in London, noted in a report: "The market has reacted, but if the rhetoric escalates further, there is clearly more room for exchange rates to move." US Treasury Secretary Besant called for market calm on Tuesday and dismissed speculation that Europe might sell off US Treasury bonds and other dollar assets should the Greenland dispute intensify. Although the likelihood of such an event is low, the fact that investors are openly discussing this extreme countermeasure is sufficient to indicate that retaliatory actions are becoming a potential tail risk influencing the market and the dollar's exchange rate. From a capital flow perspective, options market positions show a tendency to short the US dollar. Data from the Depository Trust & Clearing Corporation indicates that since the market opened on Monday, investors have shown a greater preference for establishing long positions in the Euro and Australian Dollar against the US dollar.