Dollar Rallies as President Trump Backs Off Tariff Threats on Europe

Group 1: Dollar Index and Market Reactions - The dollar index (DXY00) rose by +0.18% on Wednesday after recovering from early losses, influenced by President Trump's comments on tariffs related to Greenland [1][4] - Initial concerns about potential higher tariffs from President Trump on European countries pressured the dollar, coinciding with a significant decline in US pending home sales [2][3] - The dollar continues to face underlying weakness due to expectations of a -50 basis point interest rate cut by the FOMC in 2026, while other central banks are expected to adjust rates differently [5][6] Group 2: Economic Indicators - US pending home sales in December fell by -9.3% month-over-month, marking the largest decline in 5.5 years, which was worse than the expected -0.3% [3] - US construction spending in October increased by +0.5% month-over-month, surpassing expectations of +0.1% [3] Group 3: Central Bank Policies - The Federal Reserve is increasing liquidity in the financial system by purchasing $40 billion a month in T-bills, contributing to dollar pressure [6] - The market is currently pricing in a 5% chance of a -25 basis point rate cut at the FOMC's next meeting scheduled for January 27-28 [4]