Euro Rebounds as Trump’s Greenland Tariff Threat Reignites Trade Risk

The US dollar remains under pressure amid reports that US President Donald Trump has decided to impose additional 10.0% tariffs on a number of European countries that agreed to deploy their military forces to Greenland. Starting February 1, the duties will apply to imports from Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland, and the United Kingdom. From June 1, the tariffs are set to rise to 25.0% and will remain in place until the US reaches a final agreement on the “acquisition” of Greenland. Trump justifies the need to control the island by citing national security concerns for both Europe and the United States. The new tariffs are expected to negatively affect European exports, which are already subject to 15.0% duties agreed upon last summer during US–EU trade negotiations.

While the risk of the US using force in the region is currently viewed as relatively low, some military operations cannot be fully ruled out. Moreover, Europe is weakened by the prolonged military conflict between Russia and Ukraine. Today at 12:00 (GMT+2), eurozone inflation data for December will be released. Forecasts suggest that the core harmonized consumer price index, excluding food and energy, will rise further to 2.3%. Inflation data published last week also point to such a scenario.

For instance, Germany’s harmonized CPI showed annual growth of 2.0%, while Italy’s reached 1.2%. This predictable price dynamic has become one of the euro’s key advantages over the dollar. US markets are closed today in observance of Martin Luther King Jr. Day, so investors and forex traders continue to assess the drivers from last Friday. Recall that the US dollar received a modest boost after December industrial production rose by 0.4% versus a forecast of 0.1%, while capacity utilization increased from 76.1% to 76.3%, exceeding expectations of 76.0%.

GBP/USD

The British pound is trading higher against the US dollar, holding near the 1.3400 level. Trading activity remains relatively strong at the start of the week despite US markets being closed for Martin Luther King Jr. Day. In the UK, Rightmove house price index data published today showed annual growth of 0.5% in January after –0.6% in December, while monthly growth accelerated to 2.8% from –1.8% previously.

Investors are also awaiting GDP growth estimates for December (three-month period) from the National Institute of Economic and Social Research (NIESR). The previous forecast suggested a 0.1% economic contraction. Recall that GDP data for November showed a monthly increase of 0.3%, significantly above expectations of 0.1%. Bullish sentiment toward the pound was also supported last week by industrial production data for November: annual growth accelerated to 2.3% from 0.4%, while analysts had expected –0.4%. On a monthly basis, output eased from 1.3% to 1.1%, still well above forecasts of 0.1%.

On Tuesday at 09:00 (GMT+2), market participants will focus on labor market data for November–December. Average earnings including bonuses are expected to slow from 4.7% to 4.6%, which could positively affect future inflation dynamics. The unemployment rate may also decline from 5.1% to 5.0%, although it remains above the Ministry of Labor’s target levels. On Wednesday at 09:00 (GMT+2), consumer inflation data will be released, with traders still expecting core CPI to accelerate from 3.2% to 3.3% in December. Meanwhile, global trade tensions remain a negative factor for the pound, exacerbated by recent statements from President Trump, who imposed additional 10.0% tariffs on several European countries, including the UK, for supporting Denmark’s decision to send additional troops to Greenland. This move was a response to the White House’s demands for control over the island, justified by national security and NATO alliance considerations.

NZD/USD

The New Zealand dollar is strengthening against the US dollar, testing the 0.5775 level on an upside breakout. Investor attention is focused on a block of macroeconomic data from China, where GDP growth in Q4 2025 slowed year-on-year from 4.8% to 4.5% against expectations of 4.4%, while quarterly growth accelerated from 1.1% to 1.2%, defying forecasts of 1.0%.

Industrial production data were also positive: in December, annual growth increased from 4.8% to 5.2%, exceeding expectations of 5.0%. Retail sales, however, slowed from 1.3% to 0.9%, although this still outperformed preliminary estimates of 1.2%. US markets are closed today for Martin Luther King Jr. Day, while in New Zealand, key data releases are expected on Wednesday at 23:45 (GMT+2), when December retail sales figures will be published, and on Thursday, when CPI data for Q4 2025 will be released. Forecasts suggest quarterly inflation will slow from 1.0% to 0.5%, while the annual rate is likely to remain unchanged at 3.0%.

If preliminary estimates are confirmed, the Reserve Bank of New Zealand (RBNZ) may slightly soften its stance, although an imminent rate cut is unlikely. Officials remain focused on returning inflation to the 2.0% target and are expected to keep borrowing costs at a relatively high level of 2.25% until then.

Meanwhile, markets expect the US Federal Reserve to deliver at least one or two 25-basis-point rate cuts in 2026. While traders are more aggressive in their expectations, official forecasts currently point to just one cut. Much will depend on the new Fed chair, who is expected to take office in May following the end of Jerome Powell’s second four-year term. Additional attention was drawn by Powell’s recent statement that he is aware of potential criminal charges being prepared against him by the US Department of Justice, which he described as possible political pressure. On Thursday at 17:00 (GMT+2), the US will publish October and November data on personal income and spending, traditionally viewed as key indicators of consumer sector health and demand resilience. Investors will also watch the personal consumption expenditures price index, a key inflation gauge for the Fed, which was previously delayed due to the shutdown.

USD/JPY

The US dollar is weakening against the Japanese yen, attempting to consolidate below the psychological 158.00 level and retreating from record highs set on July 11, 2024, which were renewed late last week. With US markets closed today for Martin Luther King Jr. Day, investors are focusing on Japanese data.

Machinery orders in November declined by 6.4% year-on-year after a 12.5% increase, against a forecast of 4.9%. On a monthly basis, orders fell by 11.0% following a 7.0% rise. Industrial production also slowed slightly from –2.1% to –2.2%. Additional support for the yen comes from expectations that the Bank of Japan may raise interest rates as early as April. However, tighter monetary policy contrasts with the plans of Prime Minister Sanae Takaichi, who favors a more accommodative approach. This divergence has fueled political debate and speculation about early parliamentary elections.

Markets have reacted to these signals with a noticeable weakening of the yen. In this environment, investors fear that political uncertainty and potential delays in key budget decisions amid the election cycle could trigger internal crises and undermine the Bank of Japan’s efforts to stimulate the economy and stabilize financial markets, thereby maintaining risks of further yen weakness.

Global markets remain extremely tense amid high import tariffs initiated by President Trump, who last week renewed tough rhetoric regarding Greenland and announced new 15.0% tariffs against Denmark and several other European countries that supported Copenhagen and sent troops to the island.

The tariffs are expected to take effect on February 1, rising to 25.0% in the summer, and will remain in place until a final agreement on the US “acquisition” of Greenland is reached. On Thursday at 01:50 (GMT+2), Japan will release December foreign trade data. Markets currently expect exports to rise by 6.1%, while imports may accelerate from 1.3% to 3.6%. On Friday at 01:30 (GMT+2), investors and forex traders will turn to December consumer inflation data, which could serve as a key signal for the Bank of Japan’s future policy decisions. On the same day, the central bank will hold its first interest rate meeting of the year, with analysts almost unanimously expecting the rate to remain unchanged at 0.75%.

XAU/USD

Gold prices are rising during the morning session, consolidating near the 4670.00 level and setting new record highs. As before, geopolitical tensions continue to support prices. Recall that last week President Trump reiterated the need for US control over Greenland, arguing that the island is unable to defend itself in the event of escalation from Russia or China. EU leaders responded by emphasizing respect for territorial integrity and rejecting the proposal. Denmark and several other EU countries demonstratively sent military representatives to the island as a signal of readiness to deploy larger forces.

As a result, the White House accused Germany, France, Denmark, and several other countries of escalating tensions in the region and signaled the possibility of additional tariffs on their exports. These could reach 15.0% from February 1 and 25.0% from June 1, remaining in place until a final agreement on the acquisition of the island is reached. US markets are closed today for Martin Luther King Jr. Day, so investors continue to assess the drivers from last Friday.

Recall that the US dollar received only a modest boost after December industrial production increased by 0.4% versus a forecast of 0.1%, while capacity utilization rose from 76.1% to 76.3%, exceeding expectations of 76.0%. In addition, pressure on the dollar persists amid expectations that the Federal Reserve may accelerate interest rate cuts this year, especially with the appointment of a more administration-friendly Fed chair in May.