By Vassilis Karamanis

(Bloomberg) — The dollar fell to its lowest level in two weeks and currency hedging costs climbed as President Donald Trump showed no signs of backing down in his campaign for control of Greenland and threatened new tariffs on France.

The Bloomberg Dollar Spot Index slipped to its weakest level since Jan. 6 and was on track for its worst two-day stretch in about a month. The euro rose to a near two-week high while the Swiss franc led gains in the Group-of-10 currencies.

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Trump has threatened to impose tariffs on European countries that oppose his plans to take Greenland from Denmark, sparking fears of a major trade confrontation. The US president meanwhile floated 200% tariffs on French wine and champagne after President Emmanuel Macron rejected an invitation to join his latest peace initiative.

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Short-dated volatility firmed as last year’s pattern of a weaker dollar coinciding with higher hedging costs re-emerged. Euro options volume rose, reflecting both demand for protection and a renewed desire to position for a near-term move higher, in what amounts to the sharpest bullish repricing for the common currency since early August.

“Markets have reacted but there’s clearly room for bigger moves if the rhetoric increases further,” Jim Reid, global head of macro research and thematic strategy at Deutsche Bank AG in London, wrote in a note.

US Treasury Secretary Scott Bessent on Tuesday urged calm and dismissed the idea that Europe could dump Treasuries and other US assets should the conflict over Greenland escalate further. While unlikely, the mere fact that investors are openly talking about the extreme countermeasure shows how retribution is becoming a tail risk for markets and the dollar.

In flow terms, options positioning leaned against the greenback. Data from the Depository Trust & Clearing Corporation show investors have favored long exposure in the euro and the Australian dollar versus the dollar since Monday’s open.

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