Dollar Crumbles as 'De-Dollarization' Trade Returns; Gold Eyes $5,000

LONDON/NEW YORK — The US Dollar Index (DXY) suffered its worst weekly performance of the year, shedding 1.88% to close at 97.50, as a perfect storm of diplomatic spats and Washington dysfunction fueled a resurgence in the “sell-USA” trade.

The greenback's retreat has been mirrored by an unprecedented rally in hard assets. Spot Gold (XAU/USD) shattered records to approach $5,000/oz, while Silver (XAG/USD) consolidated above the $100 mark, reflecting deep institutional skepticism regarding US policymaking stability.

Data Snapshot

• Index Close: DXY at 97.50 (-1.88%)
• Key Resistance: Gold (XAU/USD) eyeing $5,000
• Risk Event: Funding Deadline on January 30
• Monetary Policy: Fed target potentially cutting to 3%

Geopolitics Drives Capital Flight

The primary catalyst remains the escalating diplomatic friction between the Trump administration and European allies over the status of Greenland. Although tariffs have been paused, the threat of US expansionism has rattled NATO unity, prompting Nordic sovereign wealth funds to signal a reduction in USD-denominated assets.

“The market is pricing in structural political risk,” said a macro strategist at a major European bank. “When allies openly discuss 'de-risking' from the dollar due to political unpredictability, the premium on the reserve currency evaporates.”

Shutdown Risk Looms

Compounding the dollar's woes is the approaching January 30 funding deadline for the US federal government. With the Senate and House deadlocked on Homeland Security appropriations and a blizzard forecast to disrupt legislative sessions in Washington, the probability of a partial government shutdown has spiked.

Markets are also watching Federal Reserve turnover. The potential nomination of Riddle for Chair—viewed as a proponent of faster rate cuts to a 3% target—has accelerated bearish dollar bets, pulling forward expectations of monetary easing to June.