In response to U.S. President Donald Trump's declaration of a new 10% import tariff targeting goods from eight European countries, global currency markets experienced notable shifts on Monday. The proposed tariffs, effective from February 1, cover Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland, and Britain. This measure was linked by Trump to his intent to purchase Greenland, a move that prompted immediate risk-averse behavior among investors.
The Swiss franc, recognized historically as a safe-haven currency, saw its largest one-day gain against the dollar in a month. Other European currencies, including the euro, pound sterling, and the Scandinavian crowns, initially dipped overnight but subsequently appreciated. By afternoon trading in Europe, the euro had increased by 0.3% to $1.1638, the pound rose by 0.34% to $1.342, and the Norwegian crown also strengthened. Collectively, these movements contributed to the dollar depreciating 0.2% on the day to 10.066.
Market watchers observed that the initial reaction mirrored that of April in the previous year, when broad tariff announcements by the Trump administration triggered investor skepticism towards U.S. assets, resulting in dollar selling. While capital outflows from the dollar were evident, particularly towards the Swiss franc, financial analysts recognize that escalation of the trade dispute could paradoxically increase demand for the dollar.
Kit Juckes, chief foreign exchange strategist at Societe Generale, noted, "A potential intensification of the trade conflict stemming from President Trump's Greenland-related tariffs is not necessarily negative for the dollar. It presents greater challenges for Europe, which exports more extensively to the U.S. than vice versa." This perspective implies that Europe's larger exposure to U.S. markets may disadvantage its currencies if trade frictions increase.
Meanwhile, the Japanese yen, another prominent safe-haven currency, traded 0.14% lower against the dollar at 157.9 yen amid domestic political developments. Expectations surrounding an imminent snap election and the prospect of increased fiscal stimulus have pressured the yen, pushing it close to its weakest level since mid-2024. Given this depreciation and verbal warnings from Tokyo authorities, the likelihood of official intervention remains elevated, although some analysts express skepticism about the long-term effectiveness of such measures without supportive economic fundamentals.
Derek Halpenny, MUFG's head of research for global markets in EMEA, commented, "There remains doubt regarding the sustainability of intervention success without underlying yen-favorable factors. Today's yen movements were more restrained, reflecting this cautious outlook."
In addition to currency markets, cryptocurrencies experienced notable declines on Monday, reflecting diminished risk appetite. Bitcoin dropped 2.5% to just under $93,011, while ether decreased 3.8% to $3,213.
On the economic data front, China reported a gross domestic product growth of 5.0% for the previous year, achieving the government's target by capitalizing on a record proportion of global demand for goods to mitigate the impact of subdued domestic consumption. The Chinese onshore yuan responded positively, climbing to a 32-month peak of 6.9630 per U.S. dollar. This gain followed the country’s central bank setting its most robust daily fixing in over two years, signaling sustained currency strength amidst mixed economic signals.