The dollar headed for its largest daily fall in over a month on Tuesday, after threats from the White House to Europe over the future of Greenland triggered a broad selloff across US stocks and government bonds, and drove the euro and the pound higher.
The dollar index , which measures the US currency's performance against a basket of six others, fell as much as 0.6 percent - marking its biggest one-day drop since mid-December - as investors worried about exposure to US markets.
On Monday, US President Donald Trump's renewed tariff threats against European allies triggered a repeat of the so-called "Sell America" trade that emerged after last year's "Liberation Day" tariff announcement in April, with stocks, Treasury bonds and the dollar all declining.
US markets will return on Tuesday following a public holiday for Martin Luther King Jr. Day.
Investors were dumping dollar assets on "fears of prolonged uncertainty, strained alliances, a loss of confidence in US leadership, potential retaliation and an acceleration of de-dollarisation trends," Tony Sycamore, market analyst at IG in Sydney, said.
"While there are hopes the US administration may soon de-escalate these threats, as it has with prior tariff announcements, it is clear that securing Greenland remains a core national security objective for the current administration," he added.
The euro rose 0.6 percent to $1.1719, while the pound gained 0.35 percent to trade at $1.3474. Sterling got a minor additional lift from UK labour market data that showed unemployment remained at a five-year high, but also offered positive signs such as vacancy numbers plateauing.
In terms of investor demand for euros, the "Sell America" effect could be short-lived, Barclays strategist Lefteris Farmakis suggested.
"Tariff threats are a marginal negative for the dollar in the near-term given long positions and still-low hedge ratios from a historical perspective. That said, major escalation with NATO spill-overs is a much bigger problem for the euro than Liberation Day," he said.
