The US dollar has started 2026 on a weak note, falling to fresh two-week lows after a brief period of relative strength early in the year. This decline reflects the ongoing uncertainty and erratic policy direction from the US administration, which continues to weigh heavily on the greenback.
Over the weekend, former President Trump escalated tensions by threatening tariffs on Europe amid disputes over Greenland. This has shifted geopolitical risks into renewed economic and trade concerns, echoing similar episodes seen throughout 2025. While previous incidents involving Trump eventually settled into a “TACO” (Temporary And Comeback Opportunity) situation, his recent actions—combined with moves on Venezuela and his frustration over not receiving the Nobel Peace Prize—suggest that this latest dispute could have a more lasting impact.
Markets, however, are not waiting to see how this plays out. The immediate reaction is one of dollar selling, signalling a lack of confidence in the US currency amid the ongoing global uncertainty.
Technically, EUR/USD is up around 0.5%, approaching 1.1700 after breaking above both its key hourly moving averages for the first time this year. This technical break shifts the short-term outlook for the euro-dollar pair to a more bullish stance, adding momentum to the dollar’s current decline.
The broader themes of de-dollarisation and currency debasement persist as long as geopolitical chaos and policy unpredictability continue. This environment remains generally unfavourable for the US dollar.
Among major currencies today, the Japanese yen stands out but not for positive reasons. Despite the dollar’s weakness, USD/JPY remains near 158.20, close to unchanged. This reflects poor sentiment towards the yen, especially following Japan’s Prime Minister Takaichi’s announcement of a snap election scheduled for 8 February. Historically, lacklustre reaction to seemingly positive news often signals potential trouble ahead. Speculation about possible Tokyo intervention to support the yen may increase if this situation persists.
Forex traders should monitor these political and technical developments closely, as ongoing uncertainty and interventions could create volatility and trading opportunities.
Original Source: Justin Low of investinglive.com
