Tariff Wars Return: Euro and Pound Gain, Yen Wavers as Gold Holds Record Highs

Last weekend, US President Donald Trump announced the introduction of additional 10.0% import tariffs from February 1 on a number of European countries, including Denmark, France, Germany, and the United Kingdom. The escalation was triggered by these countries’ active support for Denmark amid territorial disputes over Greenland with Washington. The White House administration justifies its position on national security grounds, citing Greenland’s strategic location in the Arctic, as well as the island’s potential as a source of oil and other natural resources.

At the same time, the EU is considering activating previously approved but suspended retaliatory tariffs on US goods totaling around €93.0 billion. In parallel, Brussels is discussing the suspension of ratification of the EU–US trade agreement signed in 2025, which would serve as a political signal against unilateral actions by the White House. Recently released macroeconomic data from the eurozone had little impact on the pair. As expected, the core consumer price index rose by 2.3% year-on-year in December and by 0.3% month-on-month, while the broader CPI eased slightly from 2.0% to 1.9% YoY and increased by 0.2% MoM, confirming that inflation is currently not a major issue for the region. The European Central Bank (ECB) is likely to maintain a wait-and-see stance for an extended period, which may become a notable competitive advantage for the euro versus the US dollar, given that the Federal Reserve is projecting at least one 25-basis-point rate cut this year.

Today, investors and forex traders are focused on German producer inflation data for December: the producer price index declined from –2.3% to –2.5% YoY versus expectations of –2.4%, and from 0.0% to –0.2% MoM, while forecasts stood at –0.1%. In addition, at 12:00 (GMT+2), January data from the ZEW Center for European Economic Research on business sentiment will be released. The eurozone economic sentiment index is expected to rise from 33.7 to 35.2 points, while Germany’s index is projected to increase from 45.8 to 50.0 points. In the US, the ADP employment report will be published at 15:15 (GMT+2).

GBP/USD

The British pound is strengthening against the US dollar, consolidating near 1.3450 while awaiting new market drivers. Investors are focused on UK labor market data. In December, jobless claims totaled 17.9K after a previous increase of 20.1K, compared with forecasts of 18.8K. Average earnings excluding bonuses eased from 4.6% to 4.5%, while earnings including bonuses slipped from 4.8% to 4.7%, against expectations of 4.6%. The unemployment rate held steady at 5.1% versus a forecast of 5.0%. Traders are also factoring in Rightmove house price data released yesterday: prices rose by 0.5% YoY in December after –0.6%, and by 2.8% MoM after –1.8%, pointing to a localized uptick in inflationary pressure in the UK at the start of the year, though still broadly in line with the regulator’s outlook. Later today, the US ADP employment report for the past four weeks will be released at 15:15 (GMT+2).

Tomorrow at 09:00 (GMT+2), investors will focus on UK consumer and producer inflation data for December. The core CPI is expected to remain at 3.2%, while the headline index is forecast to accelerate from 3.2% to 3.3%. Meanwhile, US investors continue to monitor President Donald Trump’s rhetoric regarding new import tariffs on European countries for supporting Denmark in the territorial dispute over Greenland. The tariffs are set to take effect from February 1 at 10.0%, rising to 25.0% from June 1 until an agreement on the US “acquisition” of Greenland is reached.

AUD/USD

The Australian dollar is advancing against the US dollar, extending the bullish momentum from the previous day. The pair is testing the 0.6740 level for an upside breakout, while investors await fresh drivers, primarily from the US. US markets were closed yesterday for Martin Luther King Jr. Day, leaving traders focused on rising geopolitical tensions after President Donald Trump announced new 10.0% tariffs against several European countries, including Germany and France, which supported Denmark amid US claims over Greenland on national security grounds.

Some EU countries criticized Trump’s territorial claims and even deployed limited contingents to the island, though they later decided to withdraw them. Nevertheless, the tariffs are set to take effect on February 1 and may be raised to 25.0% from June 1 if no final deal on Greenland is reached. Meanwhile, the Australian dollar received support from domestic data indicating rising inflation risks: in December, the Melbourne Institute CPI rose from 3.2% to 3.5% YoY and from 0.3% to 1.0% MoM, broadly in line with Reserve Bank of Australia (RBA) forecasts and justifying its cautious stance. RBA officials have not ruled out rate hikes if inflation exceeds expectations. Investors also reacted to data from China, where Q4 2025 GDP slowed from 4.8% to 4.5% YoY versus forecasts of 4.4%, while quarterly growth accelerated from 1.1% to 1.2%, defying expectations of 1.0%. Industrial production rose from 4.8% to 5.2% YoY in December, beating forecasts of 5.0%, while retail sales slowed from 1.3% to 0.9% versus expectations of 1.2%.

USD/JPY

The US dollar is edging slightly higher against the Japanese yen, once again attempting to consolidate above the 158.00 level. Market activity remains subdued due to the lack of US data releases following the Martin Luther King Jr. Day holiday, leaving traders focused on ongoing geopolitical tensions surrounding Greenland. Last weekend, President Donald Trump announced 10.0% tariffs on several European countries for deploying troops to the island and openly criticizing his intention to purchase it. The White House continues to frame these actions as matters of national security, citing potential risks from Russia and China in the region.

At the same time, pressure on the yen intensified after Japanese macroeconomic data reduced the likelihood of near-term monetary tightening. Machinery orders fell by 6.4% YoY in November after a 12.5% increase, versus expectations of a slowdown to 4.9%, and dropped by 11.0% MoM after a 7.0% rise in October. Industrial production also declined further from –2.1% to –2.2%. The Bank of Japan’s first policy meeting of the year is scheduled for Friday, with most analysts expecting the benchmark interest rate to remain unchanged at 0.75%. Any meaningful policy shifts are not anticipated before April. On Friday at 01:30 (GMT+2), December consumer inflation data will be released, with core CPI excluding fresh food expected to slow from 3.0% to 2.4%.

XAU/USD

Gold remains near record highs, consolidating close to the 4700.00 level. Prices continue to be supported by rising geopolitical risks. Investors and forex traders are assessing President Donald Trump’s sharp statements last Saturday and his announcement of additional 10.0% tariffs on several European countries that sent troops to Greenland. The White House also confirmed that tariffs will rise to 25.0% from June 1 and remain in place until a final agreement is reached that would allow the US to “acquire” the island.

Trump justifies these measures on national security grounds, citing Greenland’s strategic importance in the Arctic, where Russia is also actively advancing its interests. European states have declared their readiness to deliver a coordinated response to Washington. It is worth recalling that 15.0% tariffs on European exports, agreed during last year’s trade negotiations, remain in force.

Additional pressure on the US dollar stems from expectations that the Federal Reserve may accelerate rate cuts this year. Moreover, the Fed’s leadership is set to change in May, and the new chair may adopt a more accommodative stance toward the White House. Meanwhile, updated forecasts from the International Monetary Fund (IMF) suggest global GDP growth will reach 3.3% in 2026, up 0.2 percentage points from the previous estimate, while the 2027 outlook remains unchanged at 3.2%.