The Australian dollar was pushed to a 15-month high by both an improvement in risk sentiment and data showing an unexpected drop in unemployment.The yen remained under pressure, hovering near a record low against the euro, after Japan’s prime minister called early elections this week and promised measures to ease 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 rate at its previous meeting last month.
The US dollar was steady at $1.1685 per euro on Thursday, after recovering 0.3% in the previous session. It was flat at 0.7953 Swiss francs, after jumping 0.7% overnight.
Trump’s threat to impose tariffs on allied countries that conflicted with his ambition to control Greenland panicked markets and triggered a broad sell-off in US assets, but his comment Wednesday in Davos that he had ruled out military action provided relief. Trump pledged Saturday to impose tariffs on European Union members Denmark, Sweden, France, Germany, the Netherlands and Finland, along with Britain and Norway, from February 1 until they drop their opposition to US gaining control of Greenland – a comment major EU countries branded blackmail.
The US president said he has reached a framework for a deal with NATO on Greenland, but gave no details on what that would entail in a post on his Truth Social platform. However, as a result, he said he would not impose tariffs.
“Traders have reacted quickly to some sharp reversals in the markets, cutting back on recently introduced bearish risk positioning and long volatility hedges, some of which cover USD shorts, and adopting a more balanced exposure to gold and silver,” Chris Weston, head of research at Pepperstone, wrote in a client note.
“Between Trump’s Davos speech and his social media posts, the market has largely removed the tail risk of a US confrontation with its NATO partners.”
The risk-sensitive Australian rose 0.4% to $0.6791, a level not seen since October 2024. It also reached the highest level since July 2024 at 107.52 yen.
Australian data for December showed a drop in the unemployment rate to its lowest level in seven months, while employment was more than double what economists had forecast.
That could prove crucial in determining the Reserve Bank of Australia’s course of action when it decides policy on February 3, analysts said.
“Today’s red-hot jobs report has dramatically increased the chances of a rate hike,” IG analyst Tony Sycamore said in a note.
“While monthly labor force data can be volatile and subject to noise, the December report is consistent with the RBA’s assessment that labor market conditions remain tight.”
The yen was steady against most major peers in Asian trading on Thursday, but at 184.83 per euro it was not far off last week’s record low of 185.56.
The Japanese currency changed hands to 158.31 per U.S. dollar, close to last week’s 18-month low of 159.45.
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