Dollar Shaken by Geopolitics, EUR/USD Jumps Toward 1.1870

Source : https://www.federalreserve.gov/monetarypolicy.htm

The EUR/USD pair surged toward the 1.1870 area, marking a strong start to the week as the US Dollar came under broad selling pressure. A mix of geopolitical uncertainty, renewed trade-war fears, and speculation over coordinated FX intervention by the United States and Japan rattled confidence in the Greenback, allowing the Euro to extend its upward momentum.

By Monday’s session, the Euro had gained more than 0.39%, with EUR/USD climbing to around 1.1872 after rebounding from intraday lows near 1.1835. The move reflects a market increasingly uneasy with US policy uncertainty and growing signs that global authorities may be uncomfortable with the Dollar’s recent strength.

Geopolitics Takes Center Stage

At the heart of the Dollar’s weakness lies a resurgence of geopolitical concerns. While US President Donald Trump eased tariff threats against Europe, signaling a softer stance over Greenland-related disputes, tensions quickly resurfaced on another front. Trump escalated rhetoric toward Canada, warning of potential 100% tariffs if Ottawa were to pursue closer trade ties with Beijing.

This uneven approach to trade policy reignited fears of a broader trade conflict, undermining investor confidence in US assets. As a result, the so-called “Sell America” trade made a comeback, weighing heavily on the US Dollar and pushing investors toward alternative currencies, including the Euro.

FX Intervention Speculation Pressures the Dollar

Adding to the Dollar’s woes was growing speculation that US and Japanese authorities could coordinate to stabilize currency markets, particularly to support the Japanese Yen. According to market chatter reported by Bloomberg, the Federal Reserve Bank of New York may have reached out to major financial institutions to assess market conditions surrounding the Yen’s sharp moves.

Even the hint of potential intervention was enough to trigger aggressive Dollar selling. In FX markets, perception often matters as much as action, and the idea that authorities might step in to curb excessive moves injected fresh uncertainty into Dollar positioning.

The impact was clearly visible in the US Dollar Index (DXY), which slipped 0.41% to 97.05, reflecting broad-based weakness against major currencies.

Markets Await the Fed

Looking ahead, traders are turning their attention to the Federal Open Market Committee (FOMC) meeting, scheduled for Wednesday, January 28. While markets are largely convinced that the Federal Reserve will leave interest rates unchanged, the real focus will be on Chair Jerome Powell’s press conference.

Investors are eager for clarity on the Fed’s outlook, especially amid legal and political noise surrounding the administration. Any hints of a dovish tilt—or concerns about growth and geopolitical risks—could reinforce the Dollar’s downward trend and provide further support to EUR/USD.

Before that, markets will digest a series of US data releases, including ADP Employment Change, housing figures, and Consumer Confidence. Strong numbers could help stabilize the Dollar, but in the current environment, geopolitical headlines may continue to dominate price action.

Eurozone: Steady but Fragile

On the Euro side, economic data offered little excitement but did not derail the currency’s rally. Germany’s Ifo Business Climate Index remained unchanged in January, signaling that Europe’s largest economy is entering the new year with limited momentum. Ifo President Clemens Fuest acknowledged that growth remains sluggish, highlighting ongoing challenges for the Eurozone.

Despite this, the Euro benefited from relative stability compared to the US. With fewer political shocks and a predictable policy path from the European Central Bank (ECB), investors appear more comfortable holding the single currency in times of Dollar uncertainty.

Technical Picture Supports the Upside

From a technical standpoint, EUR/USD’s break above the 1.1800 level has reinforced the broader bullish trend. Momentum indicators such as the Relative Strength Index (RSI) suggest buyers remain in control, even if some near-term consolidation occurs.

If the pair manages to clear resistance around 1.1907, the door opens toward 1.1950 and potentially the psychological 1.2000 level. On the downside, a retreat below 1.1800 could trigger a corrective pullback toward the 1.1728–1.1700 zone, though the overall trend still favors the bulls.

Bigger Picture

Ultimately, EUR/USD’s latest rally underscores how geopolitics and policy uncertainty can overshadow economic fundamentals. With FX intervention rumors swirling and trade tensions resurfacing, the US Dollar is losing its appeal as a safe haven—at least for now. As long as uncertainty lingers and the Fed remains cautious, the Euro is well-positioned to stay on the front foot.

Source: FXStreet